Mortgage Rates Report and Outlook, Jul. 8, 2024 — Inflation Week

Today’s market

One-Liner

This Thursday’s consumer price index (CPI) is often the economic report that is most consequential for mortgage rates. But there are two other events this week that could influence those rates similarly. And they are Federal Reserve Chair Jerome Powell’s testimony before Senate and House committees on Capitol Hill on Tuesday and Wednesday.

What’s Driving Mortgage Rates?

Mortgage rates have just ended a good week. They start this morning lower than they were seven days ago.

Why? Well, last Friday’s employment situation report showed job creation slowing. And, in a speech in Portugal last Tuesday, the Fed chair opened up the possibility of cuts in general interest rates sooner than many expected. Reuters quoted Mr. Powell:

“We just want to understand that the levels that we're seeing are a true reading on what is actually happening with underlying inflation,” he said. “I think the last reading ... and the one before it to a lesser suggest that we are getting back on the disinflationary path.”

That’s pretty upbeat for Mr. Powell. Of course, he added caution, warning, “We want to be more confident that inflation is moving sustainably down toward 2% ... before we start ... loosening policy.”

But what if this week’s CPI and the Jul. 26 personal consumption expenditures (PCE) price index both confirm that inflation is continuing to cool?

The CME FedWatch tool suggests few (6.7% of) specialist investors yet expect a cut in general interest rates after the Fed’s next meeting of its rate-setting committee, on Jul. 31.

Yes, such a cut is possible if both inflation reports are good. But it’s probably more likely that the Fed could signal that day that a cut is on the cards for its following meeting, on Sep. 18.

Still, that signal alone, if it comes, could help drive mortgage rates lower. Fingers crossed.

What To Watch This Week

Thursday’s CPI could, as always, be highly consequential for mortgage rates. Just how consequential may be influenced by the stress Mr. Powell places on inflation data when he testifies on Capitol Hill on Tuesday and Wednesday.

Like other price indexes, the CPI comprises four major components. Two are different ways of measuring price changes. And two report those changes over different periods: one the reporting month and the other the year-over-year (YOY) difference. On Thursday, those are June 2024 and Jul. 1, 2023, to Jun 30, 2024.

The first way of measuring simply shows how all prices in the survey have changed. The second reveals “core” CPI, which is all those prices excluding food and energy ones. Those can be volatile and distort underlying inflation trends. So, economists and the Fed tend to place more weight on core inflation.

Here’s what markets are currently expecting on Thursday, according to MarketWatch:

• June CPI — 0.1% expected, up from 0.0% in May

• YOY CPI — 3.1% expected, down from 3.3% in May

• June core CPI — 0.2% expected, unchanged from May

• YOY core CPI — 3.4% expected, unchanged from May

Will that be enough to impress Mr. Powell and his colleagues on Jul. 31? Maybe or maybe not. But we can hope that Thursday’s actual data are better than expected.

Friday brings the producer price index. That’s nothing like as consequential as the CPI. But it can move mortgage rates a bit, especially if it confirms markets’ existing mood, whether euphoria or gloom.

July’s preliminary consumer sentiment index is also scheduled for Friday. That’s expected to improve slightly to 68.5 from 68.2.

Other economic reports this week rarely move mortgage rates far or at all, unless they contain shockingly good or bad data.

Forecasts

Fannie Mae had recently been predicting that 30-year, fixed-rate mortgages would average over 7% during the last quarter of this year.

But its June forecast brought good news. And it now expects that average to be 6.7%.

Better yet, it thinks that rate will fall very gradually during each subsequent quarter, reaching 6.3% during the last three months of 2025.

The Mortgage Bankers Association is even more optimistic. It forecasts those rates will be down to 6.6% during the last quarter of 2024 and will average 6.0% one year later.

So, there are good grounds for hoping that mortgage rates will decrease over the long term.

But, absent some unexpected economic bombshell, they’re unlikely to do so quickly. Indeed, we may be in for a positively glacial slide.