Mortgage rates increased this week ahead of the Fed’s latest Summary of Economic Projections as investors worried the Federal Open Market Committee (FOMC) forecast would reveal more stubborn inflation and fewer rate cuts this year. The committee expects stronger real GDP and less disinflation in 2024 compared to its December forecast. 

However, during his press conference, Fed Chair Powell provided some much needed reassurance that the latest, stronger than expected inflation data had not changed the committee’s perception that inflation is heading in the right direction and that the target level for the federal funds rate could be lowered in 2024. A closer look at the dot plot suggests that fewer committee participants believe that more than three rate cuts will be appropriate this year. Despite the forecast changes, the yield on the 10-year Treasury note – which mortgage rates tend to follow – fell on the day.

The 10-year yield reflects expectations about future inflation and future economic growth. And according to the latest Fed projections, long dated yields aren’t expected to ease much.

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. Next week’s core PCE price index data release will likely cause more repricing activity.