Mortgage rates fell slightly this week as investors continue to expect slower consumer activity and weaker economic growth in the coming quarters. The August uptick in inflation – a key driver of Treasury yields and the mortgage rates they influence – was mostly due to supply factors that pushed energy prices higher. However, declining wage inflation coupled with continued strength in employment growth are bringing demand and supply into better balance, putting the US economy on a more sustainable growth path.
While investors continue to expect a recession is more likely in the near future, consumer spending is moderating – not crashing – and rising productivity is improving the economic outlook. This will likely push longer term Treasury yields higher, preventing any further declines in mortgage rates.
This week’s release of producer prices – a leading indicator of more commonly-cited inflation gauges, including movements in the consumer price index – will likely cause larger movements in Treasury yields and mortgage rates. Larger than expected wholesale prices would likely push mortgage rates higher.