Mortgage rates fell this week as retail sales and producer price data indicates inflation is edging down, but a looming debt limit standoff could push rates back up. A standoff between the administration and Congress over the federal government debt ceiling could rattle investors and move rates higher. Barring the Treasury’s accounting maneuvers, the US is expected to reach its statutory debt limit this week. The closer we get to the brink, the higher the risk of default. This could raise borrowing costs, including mortgage rates, thus hampering an already cold housing market. That is precisely what happened last time we approached the edge in 2011 – stock prices plunged, market volatility spiked and mortgage rates increased as America’s credit rating was downgraded for the first time. A fight over raising the debt ceiling is likely to drag into the summer, and mortgage borrowers should expect rate volatility as a result.  

While the unemployment rate remains low, incoming economic data continues to point to falling inflation. A few proof points include retail sales and producer prices falling again in December. Investors suspect a cooling economy will cause the Federal Reserve to pause, or even reverse, their program of interest rate hikes.