China Tariffs Reduced
- Mortgage Returns
- 19 hours ago
- 2 min read
Overview: While the major inflation data released over the past week was a little lower than expected, it was overwhelmed by the news of a reduction of tariffs between the U.S. and China. As a result, mortgage rates ended the week higher.
Government officials announced on Monday that the U.S. and China agreed to pause most tariffs on each other for 90 days, reducing the trade tensions between the two largest economies in the world. Earlier this year, the U.S. had imposed tariffs of up to 145% on Chinese imports, prompting China to retaliate with similar measures. This week’s news caused investors to raise their outlook for global economic growth, which would increase future inflationary pressures, making the easing of tensions negative for mortgage rates. Longer-term, the impact of higher tariffs will be determined by their magnitude and duration, which will depend on the outcome of negotiations with China and other countries.
The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy. In April, core CPI rose 0.2% from March, below the consensus forecast for an increase of 0.3%. It was 2.8% higher than a year ago, remaining at the lowest annual rate since March 2021.
Although this annual rate is down significantly from a peak of 6.6% in September 2022, and from 3.9% in January of last year, it is still far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. Shelter (housing) costs continue to be a primary reason why progress on bringing down inflation remains challenging. Looking at other categories, pet care and motor vehicle insurance posted large increases in April, while prices on apparel and used vehicles declined. The big question is how large of an impact higher tariffs will have on future inflation levels.
Core CPI (annual % change)
Week Ahead
May 15
Retail Sales report
Producer Price Index (PPI)
May 16
New Residential Construction report (also known as Housing Starts)
Import and Export Price Indexes
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