Mixed mortgage signals: Inflation continues to cool, but the labor market strengthens - HousingWire
The recent half-point interest rate cut by the Federal Reserve is increasingly being seen as a prudent decision, with growing support for further cuts in the near future. This sentiment is bolstered by the latest data from the U.S. Bureau of Labor Statistics, which shows a slight decline in the Consumer Price Index (CPI) for September, dropping by 0.1 percentage points from August, and registering a 2.4% increase year-over-year. Core inflation, excluding volatile food and energy prices, rose by 3.3% year-over-year, marking a 0.1 percentage point increase from the previous month.
Shelter costs, which constitute a significant portion of the CPI, also saw a decrease, falling to 4.9% in September from 5.2% in August, and down from a peak of 8.2% in March 2023. These costs represent 65% of the core inflation for September. The current market conditions, with trading markets anticipating two 25 basis point interest rate cuts in November and December, suggest that the market is accurately predicting these adjustments. This expectation is supported by the continued signs of waning inflation, which could lead to stabilization in the 10-year treasury and, consequently, relatively stable mortgage rates until the release of the Personal Consumption Expenditures (PCE) data, the Federal Reserve's preferred inflation measure, later in the month.
Despite the CPI data indicating a trend towards the Federal Reserve's 2% inflation target, there is a slight discrepancy when compared to the recent jobs report. The report revealed an addition of 254,000 non-farm payroll jobs in September, surpassing the monthly average of 203,000 jobs added over the past year. Additionally, wage growth accelerated to 4% in September. The Federal Reserve had been waiting for signs of a softening labor market before implementing further rate cuts, and while there were indications of this trend leading up to September, the latest jobs report suggests otherwise. Nevertheless, with inflation metrics either cooling or remaining steady, economists remain optimistic about the possibility of additional rate cuts before the year's end.
For prospective homebuyers and sellers, the economic data presents a mixed outlook. According to Bright MLS Chief Economist Lisa Sturtevant, lower inflation could lead to further declines in mortgage rates this fall. However, broader economic conditions, particularly labor market performance, could influence mortgage rates. If the labor market continues to exceed expectations, mortgage rates might increase or at least not decrease further. This is evidenced by the recent uptick in mortgage rates, which rose to 6.35% according to HousingWire's Mortgage Rates Center and 6.67% as reported by Mortgage News Daily.
