Mortgage rates rose initially before returning to last week’s level as economic data continues to give mixed signals on inflation and the economic outlook. Data released this week suggested that residential investment may have already bottomed, dampening any perceived risks of a recession, at least in the near-term. That said, myriad risks do remain, not least a credit crunch stemming from turmoil in the banking industry earlier this year.
These deviating signals continue to challenge the Federal Reserve’s policy decision making. While Fed Chair Jerome Powell indicated that the benchmark policy rate would likely need to go higher in order to tame inflation, other leaders including Atlanta Fed President Raphael Bostic favor a longer Fed pause, noting that the previous hikes should continue to work their way through the economy and pull core inflation closer to the Fed’s target. This push-and-pull of economic data and “Fed speak” helped mortgage rates stay flat this week, as markets and policymakers await more signals in the coming days and weeks.
Specifically, this week’s PCE inflation data is likely to cause large swings in interest rates as investors respond to the latest signal. 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.