Mortgage rates resumed their climb this week on a stronger than expected uptick in service sector activity. Prices and economic activity in the service sector – which comprises about three-quarters of overall GDP –  increased by more than expected in August, helping to push bond yields and mortgage rates higher. 

News on inflation also helped push rates higher this week. The latest Personal Consumption Expenditures Price Index showed disinflation stalled last month, driven mostly by an uptick in core services, excluding housing. Given constraints on labor supply, rising demand for services has been a concern for the Federal Reserve, and this week’s reports will likely renew concerns that the battle to bring down inflation may not be over. As a result, traders are adjusting to the fact that monetary policy could remain in restrictive territory for much longer.

Next week’s release of the latest Consumer Price Index – the next key read on inflation – will likely cause larger movements in Treasury yields and mortgage rates. Higher than expected inflation could push rates higher.