Market Update: Rates Slightly Higher; Consumer Price Index Coming Up This Week

Blog posted On July 11, 2022

Last week, mortgage rates trended slightly higher from their one-month lows the previous week. After last month’s consumer price index release showed that inflation was still climbing, rates trended sharply upward. Later, the bond market rallied after the Federal Open Market Committee (FOMC) meeting and rates began trending lower. The consumer price index scheduled for release this week will be very important.

This week, the consumer price index for June is scheduled for release on Wednesday morning. The consumer price index tracks the changes in the average price of a fixed basket of goods and services sold to final consumers. This has been a very important report over the past several months. Inflation has soared well beyond the target range, reaching levels not seen since 1981. In May, the consumer price index saw a year-over-year increase of 8.6%. This follows a yearly increase of 8.3% in April. Following the report’s release, the FOMC voted to raise the benchmark interest rate by 75 basis points – a stronger-than-expected stance against red-hot inflation.

Inflation is the enemy of mortgage rates. When inflation is higher, mortgage rates typically trend higher as well. Mortgage rates are closely linked to the bond market, which is influenced negatively by high inflation. One of the Fed’s inflation-fighting tools is the benchmark interest rate. Raising the benchmark rate can help ease spending and cool inflation. However, after the Fed saw that its rate hikes of 25 basis points in March and 50 basis points in May did not affect inflation’s pace of acceleration, it took more aggressive action at its June meeting. In June, the Fed raised the benchmark rate by 75 basis points – the largest increase since 1994.

Therefore, this reading of the consumer price index will be crucial. If it shows cooling inflation, the bond market will likely react positively, and the Fed could consider a smaller hike in its upcoming meeting at the end of the month. We will keep you updated, and if you have any questions about the current market trends or rate movement, let us know.

Sources: Bloomberg, Mortgage News Daily, Yahoo Finance