Mortgage rates moved up slightly this week. The latest economic data is stronger than expected, meaning fewer policy rate cuts than previously thought could be in the cards for 2024. Manufacturing sector activity has already bottomed and is rebounding, and the service sector continues to expand. And although the labor market is cooling, it remains tight, meaning strong wage growth could continue.

Although a resilient labor market is a boon for home buying activity, it also means less downward pressure on long-dated Treasury yields that mortgage rates tend to follow. The Treasury department is expected to borrow $816 billion in the first quarter – which should add upward pressure on yields.

While the last FOMC meeting sent rates falling at the end of 2023, market participants and the Fed will be looking for more disinflation in the new year. Otherwise Treasury yields could surge back up, pulling mortgage rates up with them.