Overview: While mortgage markets remained somewhat volatile over the past week, the major economic news contained no significant surprises. The latest inflation data matched expectations, and the Federal Reserve stuck to the anticipated script. As a result, mortgage rates ended the week with little change.
Each month, the Consumer Price Index (CPI) is one of the most highly anticipated inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy. In October, core CPI was 3.3% higher than a year ago, matching the consensus forecast and the same annual rate of increase as last month. Although this annual rate is down significantly from a peak of 6.6% in September 2022, it is still far above the readings around 2% seen early in 2021, which is the Fed’s stated target level. Shelter (housing) costs were 4.9% higher than a year ago and continued to be a primary reason why reaching the 2% target remains challenging.
Unlike the last Fed meeting on September 18, for which investor expectations were unusually divided, there was little drama heading into November’s meeting. As expected, the Fed reduced the federal funds rate by 25 basis points to a target range of 4.50% to 4.75%, and the changes to the meeting statement were relatively minor. According to the statement, the risks to achieving the Fed’s employment and inflation goals are "roughly in balance," so the current restrictive monetary policy stance can be gradually eased. Most investors anticipate that the Fed will cut rates by another 25 basis points at the next meeting on December 18.
To understand the impact of Fed monetary policy changes on mortgage rates, it is necessary to distinguish between short-term and long-term interest rates. The Fed adjusts the federal funds rate, the shortest-term lending rate for banks. At the other end of the spectrum, mortgage rates are long-term interest rates, which are determined by a wide range of factors such as the outlook for economic growth and inflation. For the most part, anticipated changes in the federal funds rate have already been incorporated into the long-term economic outlook, so only unexpected changes in monetary policy have a significant impact on mortgage rates.
Core CPI (annual % change)
Week Ahead
Nov. 14
Producer Price Index (PPI)
Nov. 15
Retail Sales report
Nov. 18
New Residential Construction report (also known as Housing Starts)
Nov. 21
Existing-Home Sales report
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