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Inflation Falls

Economic Observer: Up-to-date information on the latest financial news

Overview: The economic news over the past week was modestly favorable for mortgage markets. Inflation continued dropping, the major economic growth data was weaker than expected, and there were no surprises from the Federal Reserve. As a result, mortgage rates ended the week lower.


The battle to bring down inflation has been driving monetary policy for the last couple of years, and the Personal Consumption Expenditures (PCE) Price Index is the favored indicator of Fed officials. In January, core PCE, which excludes food and energy to reduce short-term volatility, was up 2.8% from a year ago, matching the consensus forecast. This was down from an annual rate of 2.9% last month and the lowest level since March 2021. While the trend continues in the right direction, further progress remains a challenge to get inflation to drop back to the Fed's target of 2%.


Two other significant economic reports released over the past week by the Institute for Supply Management (ISM) were a little weaker than expected. The ISM Services Index was 52.6, while the ISM Manufacturing Index was 47.8. Since readings above 50 indicate an expansion in the sector and below 50 indicate a contraction, this data continues to highlight the consumer preference for services over goods over the past year. Also notable, this was the 16th straight month of readings below 50 for the manufacturing sector, the longest streak in about 15 years.


In his semi-annual testimony to Congress on Wednesday, Fed Chair Jerome Powell essentially offered no new information to guide investors on future monetary policy. He again emphasized that officials would make decisions based on incoming economic data and noted that the risks remain nearly balanced between loosening monetary policy too soon or waiting too long. According to Powell, it will “likely be appropriate” to begin cutting rates “at some point this year.”


Core PCE (annual % change)

Chart of Core PCE from May 2023 to January 2024, showing a slow decline in Annual Percentage Change.


Week Ahead

Mar. 7

European Central Bank Meeting

Mar. 8

Employment Report

Mar. 12

Consumer Price Index (CPI)


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