Overview: Over the past week, the major economic data remained relatively strong overall, and Federal Reserve officials showed no inclination to loosen monetary policy any time soon. As a result, mortgage rates increased again, reaching the highest levels in over two decades.
The Personal Consumption Expenditures (PCE) Price Index is the inflation indicator favored by the Fed. To reduce short-term volatility and get a better sense of the underlying trend, most investors and Fed officials prefer to look at core PCE, which excludes the food and energy components that tend to significantly fluctuate month to month. In August, core PCE was up 3.9% from a year ago, matching the consensus forecast. On a positive note, this was down from an annual rate of 4.3% last month and the lowest level since September 2021. However, it remains far above the Fed's target level of 2%, explaining why officials continue to stress the need to maintain tight monetary policy for a long time.
The Job Openings and Labor Turnover Survey (JOLTS) report unexpectedly suggested tighter conditions in the labor market. At the end of August, there were 9.6 million job openings, far above the consensus forecast of 8.8 million, and the most in about two years. There were 1.51 openings for every unemployed person. Since a higher number of openings means that companies may need to raise wages to hire enough workers, this stronger than expected data was unfavorable news for mortgage rates.
Two other significant economic reports released this week from the Institute of Supply Management (ISM) emphasized the difference in recent performance between the services and the manufacturing sectors. The ISM Services Index came in at a solid reading of 53.6. By contrast, the ISM Manufacturing Index was just 49. Readings above 50 indicate an expansion in the sector, and below 50 indicates a contraction.
Core PCE (annual % change)
October 6 —Employment Report
October 12 — Consumer Price Index (CPI)