Market Perspective

Inflation Rises


Overview: With little notable economic news, the past week was very quiet for mortgage markets, and rates ended nearly unchanged. Investors are starting to pay more attention again to COVID case counts in different regions. While this has not had much impact on mortgage rates so far, it could have more influence in the future.

 

The core Personal Consumption Expenditures (PCE) Price Index is the inflation indicator favored by the Federal Reserve, and their stated target level is 2%. In May, core PCE rose 3.4% year-over-year — the highest annual gain since 1992. This was slightly below the consensus forecast, but up from an annual rate of increase of 3.1% last month and just 1.9% in March. Economists and Fed officials have been forecasting a sharp increase in inflation of this magnitude with the reopening of the economy, so the recent readings have been no surprise. The ongoing debate concerns whether higher inflation will be a temporary spike or persist for years.


The survey of Consumer Confidence in the U.S. unexpectedly jumped this month to the highest level since February 2020, before the pandemic began to influence the results. As the reopening progresses, optimism is growing about economic and labor market conditions. Consumers report that they are planning to continue spending at a rapid pace, particularly on services such as travel and eating out.

 
 

Week Ahead

July 1 — Institute for Supply Management (ISM) Manufacturing Index

July 2 — Employment Report

July 6 — ISM Services Index


Mortgage markets will close early on Friday and will be closed on Monday in observance of July Fourth.


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