Mortgage rates increased this week on stronger than expected economic data. The US economy has defied high interest rates and stayed resilient. Last week, it was the strong inflation numbers. This week, retail sales data points to stronger consumer spending in the first quarter. In addition, a number of Federal Reserve officials spoke – including Fed Chair Jerome Powell – introducing new uncertainty on whether the Fed will cut rates this year.

Powell highlighted the recent lack of progress on bringing inflation closer to the 2-percent target. While a return to 2-percent inflation and rate cuts would certainly prevent further increases in mortgage rates, it is unlikely that mortgage rates would fall, even if the Fed were to cut interest rates.

Treasury yields, which mortgage rates tend to follow, reflect expectations about future inflation and future economic growth. Strong economic growth, fueled in part by larger fiscal deficits, could keep Treasury yields and mortgage rates elevated.

Expect more rate volatility ahead as the Fed and investors wait for more conclusive evidence of a return to low, stable and more predictable inflation. PCE inflation report next week will likely cause some major repricing activity.