Mortgage rates increased this week as investors weigh the risk that this week’s increase in the Fed’s benchmark short-term rate may not be its last. Although the latest inflation reading shows price growth is moving toward the Federal Reserve’s target, the slower pace of disinflation, stubbornly high nominal wage growth, and the recent uptick in economic activity suggest the inflation battle may not be won yet.
In the Fed Chair’s speech this week, investors were looking for clues that the Fed expects inflation will continue to moderate without the need for additional rate hikes. Fed Chair Powell left the door open for future rate increases, which suggests the committee will assess new economic data on a meeting-by-meeting basis to determine whether future policy firming is necessary.
More concrete answers will likely show up in the core PCE inflation reading on Friday and in next week’s wage growth numbers to help set the direction of mortgage rates in the near term.