Overview: A series of conflicting economic events for mortgage markets caused a lot of volatility over the past week. Tough talk from the Federal Reserve and stronger-than-expected consumer spending were negative, while lower-than-expected inflation data was positive. The net result was just a slight increase in rates, which remain far below their recent peaks.
On Thursday, Chair Jerome Powell raised expectations for how long the Fed will maintain the federal funds rate at high levels. According to Powell, the inflation fight still has a long way to go, and officials are "not confident" that monetary policy is restrictive enough to bring it back down to their target of a 2% annual rate. He added that the Fed "will not hesitate" to tighten further if necessary and reiterated that achieving their goals may require slower economic growth and a loosening of labor market conditions.
The Consumer Price Index (CPI) is one of the most widely followed inflation indicators. In October, CPI was 3.2% higher than a year ago, down from an annual rate of increase of 3.7% last month. Lower energy prices were a major factor in the tamer reading. To reduce short-term volatility and get a better sense of the long-term inflation trend, investors often prefer to look at core CPI, which excludes the food and energy components. Core CPI was 4% higher than a year ago, down from 4.1% last month and the lowest level since September 2021. While the core CPI annual rate has fallen from a peak of 6.6% in September 2022, it remains far above the readings around 2% seen early in 2021.
Despite higher prices and credit card rates, consumer spending again exceeded the forecasts of economists. In October, retail sales fell just 0.1% from September, better than the consensus for a larger decline of 0.3%, and there were upward revisions to the results for September. Significant monthly gains were seen at electronics and appliance stores, while furniture stores and motor vehicle dealers posted large losses.
Core CPI (annual % change)
Week Ahead
November 16 — U.S. Import and Export Price Indexes
November 17 — New Residential Construction report (also known as Housing Starts)
November 22 — Existing-Home Sales report