Mortgage rates increased this week as investors come to grips with the possibility of the path to two percent core inflation potentially taking longer than previously expected.

A rebound in economic activity this summer caused investors to fear that the battle against inflation may not have been won yet. The FOMC’s summary of economic projections indicates that most members of the committee expect that it could take longer for core inflation to return to the committee’s target. As a result, long term yields and mortgage rates – which mostly reflect investors’ expectations about economic growth and inflation risk – appear poised to remain elevated, at least in the near-term.

However, the impacts of tighter credit conditions, rising oil prices and student loan repayments are all expected to cool the labor market further and lower economic activity in the coming months. A large slowdown in consumer spending and an uptick in the unemployment rate would pull longer term yields and mortgage rates lower.