Mortgage rates rebounded slightly this week on stronger than anticipated economic data as well as the Fed officials comments. With inflation continuing to move toward the Federal Reserve’s 2 percent target, the central bank delivered a jumbo rate cut to start its policy recalibration process last week. However, in his press conference, the Federal Reserve Chair made sure to emphasize that the battle against high inflation had not yet been won. The future path for the fed funds rate is still not clear, as the Fed chair suggested further rate cuts will entirely depend on incoming economic data.

Inflation measured by the Fed’s preferred metric is running at 2.5%, above the central bank’s 2% goal. Excluding food and energy, core inflation is at 2.6%. However, inflation is rapidly moving lower. Over the past three months, core inflation increased at an annualized rate of just 1.7%. Employment growth is also slowing more than previously thought. Higher downside risk to inflation and economic growth should pull yields lower, along with the mortgage rates that tend to follow.

The personal consumption expenditures data released later this week should confirm that consumer spending continues to ease pulling down price growth. However, more stubborn core inflation would likely prevent further declines in long dated yields and mortgage rates. Expect more mortgage rate volatility as traders process the incoming data and change their forecasts for economic growth and the path of the fed funds rate.