After reaching their highest level in more than two decades last week, mortgage rates fell this week on economic data showing more modest economic growth in the second quarter and a cooling labor market. Revisions to the second quarter estimate of economic growth, which showed a moderation in consumer spending and large downward revisions to business investment – two factors frequently pointed to as sources of strong economic activity – helped push bond yields and mortgage rates downward. 

Signs of a cooling labor market also helped rates trend lower this week. Labor demand is still far above pre-pandemic norms, but slowly easing: job openings fell in June to their lowest level since March 2021. Cooling demand and slowing wage growth is expected to bring down core inflation further, which would likely provide more relief for rates. However, rising fiscal deficits in 2023 and beyond could prevent further cooling and keep interest rates, and mortgage rates, elevated.

This week’s release of core PCE inflation – the Fed’s favorite inflation gauge – and Friday’s employment report will likely cause large movements in Treasury yields and mortgage rates. Higher than expected inflation and jobs data could push rates back up.