Mortgage Rates Edged Higher This Week

Mortgage rates moved up this week as new data showed that wage growth remains well above a level that is consistent with the Federal Reserve’s inflation target. The US economy is cooling but April’s labor market and inflation data revived concerns that the Fed’s battle against inflation could be far from over.

Long-term interest rates depend on current and expected inflation as well as the economic outlook. While US economic growth is slowing, core inflation hasn’t budged and financial stress from the previous month’s banking sector turmoil has lessened somewhat. 

Shelter costs are still the biggest contributor to a Core CPI that saw monthly gains in April, but relief should be on the way. Annual growth of the Zillow Observed Rental Index, a measure of market rents that leads the rent components of CPI, has fallen to 5.3% in April from a high of 16.9% in February 2022.

However, the Fed will remain prepared to further tighten policy until it sees more concrete evidence that inflation is waning. And until then, the yield on the US 10-year Treasury will remain high, and mortgage rates – which tend to follow the 10-year –- will also stay elevated.