Tariff Impact on Mortgages Remains Uncertain
- Mortgage Returns
- Apr 2
- 2 min read
Overview: Mortgage markets were volatile over the past week, as investors anticipated the announcement of the new reciprocal tariff policies. The latest inflation report slightly exceeded expectations, while the major manufacturing data fell short, and neither caused much reaction. Mortgage rates ended the week lower.
The current administration announced late Wednesday that it will increase tariffs on many countries based on a calculation that is roughly half of the tariffs each one charges the U.S. The effect of higher tariffs on mortgage rates depends on offsetting factors. First, tariffs directly raise prices, which is inflationary. However, the new policies also are anticipated to slow global economic growth, which would reduce future inflationary pressures. It is expected that other countries will negotiate to reduce tariffs, and the long-term impact on mortgage rates will depend on the duration and the magnitude of the new tariffs.
Keeping inflation under control is a top priority for Federal Reserve officials, and the Personal Consumption Expenditures (PCE) Price Index is their favored indicator. In February, core PCE, which excludes food and energy to reduce short-term volatility, was 2.8% higher than a year ago, slightly above the consensus forecast of 2.7%. Goods prices rose 0.2% from January, with the largest increases seen in motor vehicles and recreational goods, while services prices rose 0.4%. The Fed has made substantial gains in bringing inflation down from its highly elevated peak in the middle of 2022, but further progress toward its annual target of 2% continues to be challenging.
Another significant economic report released this week by the Institute for Supply Management fell short of expectations. The ISM Manufacturing Index dropped to 49, below the consensus forecast. Readings under 50 indicate a contraction in the sector. This report continues the trend that manufacturers have been struggling over the last few years.
Core PCE (annual % change)
Week Ahead
April 3
ISM Services Index
April 4
Employment Report
April 10
Consumer Price Index (CPI)
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