Inflation is Dropping, When Will Mortgage Rates Follow? An Update from NAF

Inflation is Dropping, When Will Mortgage Rates Follow? An Update from NAF

Mortgage rates continue to be a key topic for both real estate buyers and sellers. Here with the latest insights and what to expect in the months ahead: The Agency’s partners at New American Funding.

As another month rolls by, we continue to see inflation come down. Year-over-year inflation, which was as high as 6.6% a year ago, is now down to 4.1%. Inflation is quickly cooling, and (for now) it appears to be a trend that will continue. So, with inflation coming down so quickly, why are current mortgage interest rates continuing to go up? Read and watch the latest below.

Top Takeaways

  • Inflation continues to drop. 
  • The economy is strong with retail sales up 0.6% in just one month.
  • Unemployment has barely moved, staying put at 3.8%.
  • The strong jobs market and economic conditions continue to keep upward pressure on mortgage rates.
  • The Fed addressed the potential impact of the escalating long-term Treasury yields.
  • A temporary halt in interest rate increases may be in sight.


Unemployment Rate vs. Federal Funds Rate

Take a look at the five-year Treasury and the fact that it has continued to climb for almost six straight months. It’s pretty incredible to see rates move higher this quickly at the exact time that inflation is moving lower. The reason mortgage interest rates continue to increase is mainly due to the jobs market

A while back, the Federal Reserve had predicted that this tightening campaign would push the unemployment rate above 4.1% already. Yet, here we stand with an unemployment rate that has barely moved; currently sitting at 3.8%, which was the same as the month prior. In fact, it’s difficult to tell at this point if it will budge at all for the remainder of the year. Additionally, it’s important to mention that the economy is also very strong. In fact, this week we saw retail sales well above consensus with a 0.6% increase in just one month.

At the end of the day, The Fed has to look forward and their assessment is that inflation is slowing, but there is no guarantee it will stay at or move below their target with the economy and the jobs market so strong. 

The market has now adjusted to this reality, that the economy is very strong even with all of the moves the Fed has made so far. That’s going to keep rates on the higher side until we start to see some movement in the unemployment rate and/or GDP.

The Fed Signals a Possible End to Future Rate Hikes 

In a recent speech, Federal Reserve Chair Jerome Powell addressed the potential impact of the escalating long-term Treasury yields on the Fed’s trajectory for interest-rate adjustments. His remarks highlighted a comprehensive understanding of the current economic landscape and its implications for monetary policy decisions.

  • Temporary Halt in Rate Increases: Powell’s remarks indicated the possibility of a temporary suspension in the Fed’s interest-rate increases, considering the recent surge in long-term rates and the ongoing progress in curbing inflation.
  • Market Reaction Analysis: The sharp ascent in long-term rates might serve as a substitute for a Fed hike, potentially decelerating economic growth if these elevated borrowing costs persist.
  • Confident Outlook: Powell’s commentary cautiously acknowledged recent inflation declines and a cooling labor market, signifying the Fed’s growing confidence in its existing policy stance, thereby raising the threshold for any further rate hikes in the upcoming period.
  • Navigating Economic Complexities: Despite robust economic activity, challenges persist, including diminishing inflation rates and the intricacies of post-pandemic supply chains, necessitating a careful and intricate forecasting approach for the Fed.
Powell’s nuanced assessment reflects an acknowledgment of both the positive and challenging aspects of the current economic scenario, emphasizing the Fed’s cautious approach to future policy adjustments amidst a complex and dynamic financial landscape.

Thinking of making a move? Connect with your real estate agent and the team at New American Funding. 


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