Inflation Remains Steady

Overview: Mortgage markets experienced little change over the past week. The latest inflation data was in line with expectations, and other economic reports also revealed no market-moving surprises. The government shutdown may delay the release of future economic reports, but it otherwise has had little impact on financial markets so far. As a result, mortgage rates ended the week nearly unchanged.

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With investors focused on inflation, the Personal Consumption Expenditures (PCE) Price Index, the favored indicator of Federal Reserve officials, carries a lot of weight each month. In August, core PCE was 2.9% higher than a year ago, matching expectations. This was the same annual rate of increase as July, remaining at the highest level since February. Progress toward the Fed’s 2% inflation goal remains challenging, and this target level has not been seen since February 2021. Investors are watching closely to see how much upward pressure higher tariffs will exert on future inflation levels.

Another significant economic report released this week, the Institute of Supply Management (ISM) Manufacturing Index, was also in line with expectations. The ISM Manufacturing Index rose to 49.1, slightly above the consensus forecast of 49. Readings below 50 indicate a contraction in the sector, and this was the seventh consecutive month under that level. Longer term, higher tariffs could help boost domestic manufacturing industries.

In August, sales of existing homes, which account for roughly 85% of the total market, fell slightly from July, close to the consensus forecast. Sales were 2% higher than a year ago. The median existing-home price of $422,600 rose slightly from this time last year. Inventory levels remain low, standing at just a 4.6-month supply nationally, well below the 6-month supply considered typical in a balanced market. The trend is positive, however, as inventories were 12% higher than a year ago.

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Core PCE (annual % change)

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Week Ahead

Investors will continue to monitor comments from government officials about tariffs and from Fed officials for hints about the timing of changes in monetary policy. With the government shutdown, it is not clear whether economic reports from government agencies will be released on time. According to the original schedule, the key Employment Report will be released on Friday — these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched. The ISM Services Index will also come out on Friday. The U.S International Trade in Goods and Services (aka Trade Deficit) will be released on October 7.