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Mortgage rates are likely to fall back from their 2024 highs after a key inflation gauge showed the economy continued to cool in January.
The U.S. Department of Commerce’s Bureau of Economic Analysis said the personal consumption expenditures (PCE) price index grew 0.3% from December to January, an annual increase of 2.4% report Thursday.
That was an improvement from December’s 2.6% annual rate, suggesting the Fed’s key inflation gauge continues to move in the right direction and is approaching the Fed’s 2% inflation target.
PCE and core PCE trend downward
Core personal consumption expenditures, which excludes food and energy costs, fell to 2.8%, the lowest reading since March 2021.
Mark Zandi, chief economist at Moody’s Analytics, said growth in core personal consumption expenditures was “hampered by seasonal issues” Posted on Xa social media platform formerly known as Twitter.
“From a measurement perspective, underlying inflation appears to be close to 2.5% annualized. Very close to the Fed’s 2% target,” Zandi wrote. “Everything points to continued slowing of inflation. It’s time for the Fed to start cutting interest rates.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients that the latest inflation data is consistent with the firm’s overall view that “core inflation is falling and will continue to fall due to the impact of slower wage growth and improving supply chain and recompress profits.”
Although Pantheon predicts the Fed will begin cutting interest rates in May, Shepherdson said a delay in rate cuts is increasingly likely. Federal Reserve policymakers had previously predicted that the inflation caused by the epidemic would be temporary, but it continued to rise in 2022.
this CME Group Fed Watch ToolThe agency, which tracks the futures market to assess the likelihood of the Fed’s next move, sees only a 22% chance that the Fed will cut interest rates one or more times before May 1, down from 88% at the end of January. .
Produced in 10-Year Treasury Bond,A barometer On Thursday, after the latest PCE data was released, mortgage rates next fell 5 basis points, hitting the day’s low of 4.22%. The 10-year Treasury yield previously hit a 2024 peak of 4.35% on February 22, the highest level since November 30.
Maintained index Daily Mortgage News On Thursday, the 30-year fixed-rate mortgage rate fell 5 basis points to 7.10%.
While still well below the 2023 peak of 7.83% recorded on Oct. 25, the 30-year fixed-rate mortgage rate is up nearly 50% from the recent low of 6.50% recorded on Feb. 1, according to loan lock-in data tracked cardinal point passes best blue.
The average interest rate on 30-year fixed-rate loans was 6.93% on Wednesday, Optimal Blue data showed, the highest level for the index so far this year.
The Mortgage Bankers Association (MBA) reported on Wednesday that rising mortgage rates have contributed to a fifth straight week of declines in home purchase loan applications.
Mortgage rates expected to fall
source: Fannie Mae and Mortgage Bankers Association Forecast, February 2024.
Fannie Mae economists predict mortgage rates will fall back below 6% this year, but not by much in 2025. In a Feb. 20 forecast, MBA economists predicted that mortgage rates would not fall below 6% in 2024, but would fall sharply next year, falling an average of 5.5% by the fourth quarter of 2025.
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