Mortgage rates increased significantly in the first week of January. Markets reacted to indications from the Federal Reserve that they will be taking a more hawkish approach to fighting inflation.

With the latest unemployment rate, many market participants believe this gives the Fed more room to focus on addressing inflation concerns as labor markets are near full employment levels. Additional comments from the Fed indicated they may shrink their balance sheet faster than previously expected. Markets now appear to be anticipating an initial Fed rate hike in March, with a likely cumulative rate increase of 75-100 basis points 2022.

Key data coming later this week, including jobless claims and the Producer Price Index (PPI), will both provide markets additional information on the state of labor markets and inflation levels that could impact rates.