The downward trend in mortgage rates that began in May continues. Despite large fluctuations in the past few days, the average 30-year fixed-rate mortgage is nearly back where it was at the start of the week. Although wage growth remains too high to sustain 2% price inflation, the latest consumer and producer price data showed inflation easing faster than previously anticipated.

Treasury yields and mortgage rates reflect expected economic activity and inflation. Although consumer spending is easing, rising government deficit spending could mitigate the impact of a slowdown in private spending. 

Next week’s release of the latest Personal Consumption Expenditures data will likely cause investors to adjust their inflation forecasts. Expect more rate volatility ahead as the Fed and investors wait for more conclusive evidence of a return to low, stable and more predictable inflation.