A Storm Is Brewing For Mortgage Rates And It Begins Wednesday, June 12: Report & Outlook

Today’s market

One-Liner

Last Friday’s jobs report was excellent for the economy and terrible for mortgage rates. And we now face a critical inflation report and a key Federal Reserve information dump this Wednesday.

What’s Driving Mortgage Rates?

After more than a week when markets were kind to mortgage rates — shrugging off the bad data and embracing the good — last Friday’s jobs report turned that ship around. Chances are, Wall Street is now more inclined to accept bad news for those rates and ignore good.

There’s a possibility that this Wednesday could turn the ship again, executing a five-day, 360° turn-around. But events that day would have to be very pro-mortgage rates for that to happen.

3 Major Events to Watch This Week

There are three potential game-changers for mortgage rates this week, all happening within a few hours of each other on Wednesday:

1. Consumer Price Index (CPI), markets' favorite inflation report

2. The June Fed meeting and related announcements

3. Fed Chair Jerome Powell holds a post-meeting news conference

Any one of these events has moved markets in the past, and they are all happening in half a day’s time.

Things kick off Wednesday at 8:30 a.m. Eastern with the May consumer price index (CPI). For markets, this is undoubtedly the most consequential of all inflation reports.

Inflation

The CPI is broken down into four components. Two show the CPI itself, which measures price changes across all the items surveyed. Two others cover “core” CPI. That’s the all-items index after food and energy prices have been stripped out.

CPI and core CPI come in two forms each. One measures changes in the relevant month, being May in this report. The other shows year-over-year (YOY) movements, in this case from June 1, 2023, to May 31, 2024.

Here is what markets were expecting overnight for each component:

• May CPI — A slowing increase to 0.1% from April’s 0.3%

• YOY CPI — Prices rising 3.4%, unchanged from April’s YOY

• May core CPI — Prices rising 0.3%, unchanged from April

• YOY core CPI — A slow down of a 3.5% increase, down from April’s 3.6% YOY

Those market expectations are vital to mortgage rates’ fate on Wednesday. That’s because those forecasts will have been baked in by then and it’s variations from them that drive volatility.

For a chance to see mortgage rates fall, we want to see lower numbers than markets are expecting. Higher ones could push those rates upward.

The Fed

At 2 p.m. Eastern on Wednesday, the Fed’s rate-setting body (the Federal Open Market Committee, or FOMC) is due to announce any changes to its interest rate, the federal funds rate. And that affects virtually all variable-rate borrowing, from credit cards, through auto loans, to adjustable-rate mortgages. It also indirectly influences mortgage rates.

Almost nobody expects the Fed to change its key interest rate that day. The CME FedWatch tool puts the probability of it holding the federal funds rate steady at 99.4%.

But the Fed also provides a crucial update on its thinking about future rate cuts simultaneously with the rate announcement. And, for Wall Street, that’s pure gold.

That’s especially true for this meeting because it brings extra information in the form of a quarterly Summary of Economic Projections pack. And that includes a “dot plot.”

The Fed dot plot is a graph on which each FOMC member gets to plot where he or she thinks the Fed funds rate will be at various points in the future. To mix metaphors, to markets that’s manna from heaven because it comes straight from the horse’s mouth. And they eagerly devour dot plots.

The FOMC never makes promises about future rates policy. But, if it hints that there might still be three or more cuts to general interest rates later this year, that could be immediately good for mortgage rates. Two cuts penciled in might leave those rates unchanged. The more cuts seem to remain on the table, the better. Conversely, indications of fewer than two cuts in 2024 could be immediately very bad for mortgage rates.

"Dot Plot" projection materials supplied by the Fed after select meetings. This image, notations added, was from the March 2024 meeting and could change significantly after the June meeting.

Thirty minutes after the 2 p.m. Eastern FOMC announcement, Fed Chair Jerome Powell is scheduled to host a news conference. And, again, markets always hang on his every word.

Seriously, days that are as potentially pivotal for mortgage rates as this Wednesday are exceedingly rare. So, buckle up!

Other Economic Reports this Week

Chances are, Wednesday’s events will overshadow everything else this week. And most of the other reports rarely affect mortgage rates much, even when they’re not competing for markets’ attention.

Thursday’s producer price index and Friday’s consumer sentiment report are the two most likely to move mortgage rates. But their impacts are typically only limited and temporary. And they may well be totally eclipsed by the Fed and the CPI this week.

Further Ahead

After Wednesday, we’ll have had all of June’s potentially game-changing, first-tier, economic reports — bar one. That’s the personal consumption expenditures (PCE) price index, another inflation report. And it’s not due until Jun. 28.

Of course, there will be a number of second-tier reports. But, like this week’s producer price index and consumer sentiment report, they tend to send mortgage rates up or down only a bit and then briefly. The rest — tier-three reports — rarely affect those rates at all.

Of course, mortgage rates will move between this Thursday and Jun. 28. But significant volatility is unlikely, absent some important news story that affects the economy and markets.

Forecasts

Expert economists who specialize in forecasting mortgage rates are divided in their predictions. Vanishingly few think average rates for 30-year, fixed-rate mortgages will dip below 6% this year. And some, including Fannie Mae, expect them to be at or over 7% at the end of 2024.

But others are a little more optimistic. For example, the Mortgage Bankers Association is forecasting 6.5% for the last quarter.

So, don’t expect significant falls. But there is a possibility of some gentle ones.