As many of you have heard, the interest rates are not coming down as quickly as many economists had predicted at the end of 2023. At the Federal Reserve Meeting in December 2023, they anticipated several rate cuts in 2024 which got the market excited earlier this year bringing buyers in with a bit of a frenzy. Over the last few months, we have seen things level off slightly as the Fed has retracted their statement as inflation has remained higher than expected. The Fed’s goal is to have inflation around 2% and the current stats show that it is still hovering between 3 to 3.5% monthly. This is much better than the 9%+ rates of monthly inflation that we saw 18 months ago.
The good news may finally be here and we are seeing it reflect in rates dropping over the past few days. Below I include an article from Mortgage News Daily that will give you a quick summary of how the latest CPI report has been responsible for rates finally dipping back down to 6.99% today, getting us back out of the mid to high 7% range that we have seen lately.
If it feels like we’ve been harping on the prospects for rate volatility in response to today’s inflation data for several weeks (and we have), today is why. The Consumer Price Index (CPI) is the biggest reliable source of momentum for interest rates when it comes to scheduled data–big enough that the results can come in right in line with forecasts and still have a big impact.
Indeed, today’s results were right in line with forecasts. In month over month terms, core inflation was 0.3% and annual inflation was 3.6%. The Fed wants those numbers at 0.1-0.2 in monthly terms and 2.0% annually in order to be more confident about rate cuts. The annual number wouldn’t need to hit 2.0% as long as monthly numbers suggested we were well on our way.
And again, today’s monthly number only suggested 3.6% (0.3 x 12). Despite being almost twice as brisk as desired, the 0.3% rate of monthly core inflation was apparently a relief for bond traders who quickly began pushing rates lower. Mortgage rates are based on mortgage-specific bonds that correlate substantially with US Treasuries.
Other economic data helped the cause with Retail Sales coming in unchanged for April versus forecasts calling for a 0.4% increase. Taken together, the as-expected inflation data and weaker retail sales suggest cooler inflation pressure relative to Q1’s data–something all fans of low rates were hoping to see.
Mortgage Lenders were able to drop their average top tier conventional 30yr fixed rate to 6.99% from 7.11% yesterday.
Source: Graham, Matthew. “Mortgage Rates Back Under 7% After Inflation Data.” Mortgage News Daily, 15 May 2024. https://www.mortgagenewsdaily.com/markets/mortgage-rates-05152024