Overview: Over the past week, the major U.S. economic data and European Central Bank meeting should have been slightly positive for mortgage rates overall, but surprisingly, rates climbed to the highest levels in several years..

The Retail Sales report released over the past week was mixed. Excluding the volatile auto component, retail sales in August rose 0.3% from July, which was below the consensus for an increase of 0.5%. However, the July results were revised higher by an amount comparable in size to the August shortfall. The net takeaway is that retail sales have grown at very close to the expected level in recent months.

The most recent inflation data showed an unanticipated decline, which was clearly good news for mortgage rates, but the reaction was small. The Consumer Price Index (CPI), a widely followed monthly inflation report that looks at the price change for goods and services, was just 2.2% higher than a year ago, down from an annual rate of increase of 2.4% last month.

Finally, Thursday's European Central Bank (ECB) meeting provided the anticipated outcome and had little impact on U.S. mortgage rates. As expected, the ECB confirmed its plans to wind down its huge 2.5 trillion-euro bond purchase program by the end of this year. Also of note, ECB officials lowered their forecast for economic growth in coming years.

Week Ahead

Looking ahead, the next Federal Reserve meeting will take place on September 26. A 25 basis point increase in the fed funds rate is anticipated by nearly all investors, so the comments from Fed officials will determine the market reaction. In addition, the Existing Home Sales report will be released on Thursday, followed by New Home Sales on September 26. The core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Fed, will come out on September 28.