Mortgage rates edged down only slightly this week as investors considered somewhat contradictory reports on inflation and await new data. Last week’s consumer price index report showed core inflation – especially core non-housing services inflation — remained high. On the other hand, the producer price index – which tends to lead the consumer price index – declined in May. In addition, housing data, especially the sustained rebound in homebuilder activity, indicates housing inflation will continue to decline and drag core inflation down with it.

While Federal Reserve Chair Jerome Powell indicated projections for the terminal rate had moved up, he also made clear that the committee will remain data dependent. The bulk of evidence points to a cooling US economy and further disinflation ahead.

Bond yields – and the mortgage rates that tend to follow them – depend on current and expected inflation as well as the economic outlook and the path of interest rates. Cooling inflation and a general economic slowdown would put downward pressure on long-term interest rates like the 10-year Treasury yield and in turn, mortgage rates.