Mortgage Rates Increased This Week On Strong Economic Data, Government Borrowing And Fed Psychology

Mortgage rates rose this week on stronger than expected economic data and the Treasury’s plans to increase the size of its auctions. A robust July retail sales report showed that US consumers continue to spend despite higher interest rates and inflation, which remains elevated despite continuing to cool. Evidence of enduring economic strength should continue to keep some upward pressure on bond yields and mortgage rates. The Federal Reserve’s efforts to shrink its balance sheet combined with the increased size of government debt issuance is also causing Treasury yields - and mortgage rates - to increase.

Rising productivity coupled with tighter financial conditions and the slowdown in hiring and cooling nominal wage growth are indications that the Federal Reserve’s campaign against inflation might soon be over, something that could offer some much needed relief for interest rates . But for now, upside inflation risk remains and this week’s release of the Fed’s meeting minutes revealed rate hikes may still be on the table.