Mortgage rates moved up again this week as strong economic data hint that the first Fed rate cut may be delayed, and that fewer policy rate cuts than previously thought could be in the cards for 2024. Higher than expected employment and wage growth, the retail sales upside surprise in December as well as falling unemployment claims at the start of this year are all signs that point to stronger economic activity.
Along with strong nominal wage growth and robust consumer spending comes the risk that inflation would be difficult to keep around the Federal Reserve’s 2 percent inflation target. While core inflation is increasingly likely to return to target, it is still unclear whether inflation will stay there. A number of Fed officials indicated this week that it would probably be misguided to rush to lower the target range for the federal funds rate.
Mortgage rates bottomed in the last week of December and have been rising since. Market participants will be looking to the economic data for signs that inflation can be sustained at the Fed’s two percent target. Mortgage rates are likely to remain in the current range until the fog clears.