Overview: Mortgage markets were volatile over the past week as investors reacted to news about changes in tariff policies. The latest inflation report matched expectations, and the other major economic data was mixed, causing little reaction. Mortgage rates ended the week nearly unchanged.
The current administration has announced increased tariffs on many countries. The effect of higher tariffs on mortgage rates is somewhat complicated to figure out. On the one hand, tariffs directly raise prices, which is inflationary. Offsetting this, however, the new policies are anticipated to slow global economic growth, which would reduce future inflationary pressures. The long-term impact on mortgage rates will depend on the timing and the magnitude of the new tariffs.
Keeping inflation under control is a top priority for Federal Reserve officials, and the Personal Consumption Expenditures (PCE) Price Index is their favored indicator. In January, core PCE, which excludes food and energy to reduce short-term volatility, was 2.6% higher than a year ago, matching expectations. However, this was down from an annual rate of 2.9% last month and the lowest level since March 2021. Goods prices rose 0.5% from December, with the largest increases seen in motor vehicles and parts, while services rose just 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% has been challenging.
Two other significant economic reports released this week by the Institute for Supply Management revealed mixed results. The ISM Services Index rose to 53.5, above the consensus forecast. However, the ISM Manufacturing Index fell to 50.3, falling short of expectations. Readings above 50 indicate an expansion in the sectors and below 50 indicate a contraction. These reports once again emphasize that service companies have outperformed manufacturers over the last few years, although the gap may be shrinking.
Core PCE (annual % change)
Week Ahead
March 6
European Central Bank meeting
March 7
Employment Report
March 12
Consumer Price Index (CPI)
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