Overview: A wide range of news impacted mortgage markets over the past week, including comments from Federal Reserve Chair Jerome Powell, rising tensions in the Middle East, and significant inflation data. These influences were roughly offsetting, however, and rates ended little changed, remaining near the lowest levels since early 2023.
In a speech on Monday, Chair Powell disappointed some investors by suggesting that the pace of lowering the federal funds rate may be slower than they anticipated. If the economy "evolves broadly" as expected, Powell expects that there will be another 50 basis points in rate cuts this year, while investors had priced in 75 basis points in reductions before the end of the year. He added that officials are not "in a hurry" to cut rates quickly. Mortgages rates moved a bit higher after investors learned that monetary policy easing likely will proceed more slowly.
When a conflict breaks out that could affect global markets, investors generally respond with a "flight to safety." Uncertainty created by the threat of escalation causes them to reduce the level of risk in their portfolios. This typically involves shifting from stocks to relatively safer assets such as gold and bonds, including mortgage-backed securities (MBS). This took place on Tuesday when Iran launched a missile strike at Israel, causing mortgage rates to move a little lower.
Keeping inflation in check is a top priority for Fed officials, and the Personal Consumption Expenditures (PCE) Price Index is their favored indicator. In August, core PCE, which excludes food and energy to reduce short-term volatility, was 2.7% higher than a year ago, matching expectations. This was up from an annual rate of increase of 2.6% for the prior three months, the lowest readings since March 2021. Housing costs remained stubbornly high, rising 0.5% from July, the largest increase since January. Services prices overall rose 0.2%, while goods declined by 0.2%. The Fed has made substantial gains in bringing inflation down from its highly elevated peak in the middle of 2022, but further progress toward its annual target of 2% remains challenging.
Core PCE (annual % change)
Week Ahead
Oct. 3
Institute for Supply Management (ISM) Services Index
Oct. 4
Employment Report
Oct. 10
Consumer Price Index (CPI)
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