Well, the belated CPI report is out and we avoided any major drama.
The report actually came in cooler than expected with an increase of 0.3% month-on-month and annual inflation of 3%.
Those numbers were both below Dow Jones estimates of 0.4% and 3.1%, respectively.
Core CPI, which strips out food and energy, also came in below expectations of 0.2% monthly and 3% annually, below estimates of 0.3% and 3.1%.
Long story short, mortgage interest rates can breathe a sigh of relief and shouldn’t worry about a higher rejection rate. And can even get closer to the 5s.
Next stop 5% for the 30 year fixed mortgage?
With the CPI report now out of the way, we can focus on the Fed meeting next week, which is expected to culminate in another 25 basis point rate cut.
Today’s inflation report made the Fed’s job a little easier because they don’t have to explain why they are cutting with rates rising more than expected.
Sure, 3% is above their 2% inflation target, but as long as things go in the right direction, they can justify more cuts.
Remember, the Fed raised interest rates 11 times in a row before finally pivoting last September and turning to rate cuts.
So they can technically remain restrictive while still being relaxed to some extent.
And this report will allow them to paint the narrative that inflation is cooling and less restrictive policy is acceptable.
What this means for mortgage rates is that they will not jump higher today, something that was a real risk as they are near three-year lows.
It also means they can continue their extended move lower as there will be no other major data releases while the government remains shut down.
At the same time, the report was not good enough to substantiate another large reduction in mortgage interest rates.
This means we will likely just see interest rates slowly drift towards 5%. At last glance, the 30-year fix was 6.19%, as measured by Freddie Mac.
This report allows it to continue moving towards the psychologically important 5% range.
Fed meeting next week may push mortgage rates down
As mentioned, all eyes will be on the Fed next week when they meet for another meeting.
They have also been in the dark when it comes to new data due to the government shutdown.
But they will at least be able to comment on the CPI and probably point out that it is showing promise, despite still high inflation.
They will also make a rate decision on Wednesday with odds of another 25bp cut now at 96.7% per CME.
We know the Fed doesn’t control mortgage rates, but expectations that they will cut or raise can have an effect.
Most expect them to cut twice more this year and again in January. It gets a little more sinister after that, but the general idea is lower.
So it could be enough to move the 30-year fix closer to the 5% range, although I could see rates facing resistance the closer we get to that key level.
This equates to the 10-year bond yield struggling to get below 4%, also a resistance point (which finally broke recently).
In other words, today was good news for mortgage rates as it did not create a setback.
But it is also not enough to move them meaningfully lower. It’s still a win, but if you were worried, maybe they’d be jumping higher, as you always should be!
Read on: How does the CPI affect the interest rate on mortgage loans?
Before creating this site, I worked as an account manager for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to start writing about mortgages 19 years ago to help potential (and existing) homebuyers better navigate the home loan process. Follow me on X for hot takes.