News report

Rates jump a quarter point instantly after key inflation report; Now back to 14 year highs

Rates jump a quarter point instantly after key inflation report; Now back to 14 year highs

Mortgage rates were already near their highest levels in 14 years. With large daily swings being extremely common these days, we were just one bad day away from getting back to those highs. Today was one of those days!

The culprit was at least well known and well understood, both before and after its impact on rates. This morning brought the scheduled release of the August Consumer Price Index (CPI), a key inflation report that has proven to have more power than any other inflation gauge when it s is to create volatility in rates.

In other words, we already knew that rates would rise if today’s inflation data were higher than expected, and that’s exactly what happened. In fact, the actual number exceeded forecasts by far more than the normal difference between reality and forecast. It’s common to see a spread of 0.1-0.2%, but today’s was 0.3%.

Bonds don’t like inflation for a variety of reasons. There are general and practical reasons for the impact of inflation on bondholders’ returns, but there are also expedient and tactical reasons. The latter refers to the Fed’s announcement next week. The job of the Fed is to fight inflation and one of the ways it does that is to raise its key rate.

The fed funds rate is not the same as a mortgage rate, but higher expectations for the fed funds rate tend to drive up mortgage rates. Bottom line: Markets now expect the Fed to discuss an even bigger rate hike next week and the bond market is pricing in that possibility today.

The average mortgage lender is back in the bottom 6 for conventional 30-year fixed loans. Quotes vary greatly depending on the scenario and the presence of upfront costs and discount points. It continues to be the case that many loans require a higher initial cost than historically normal due to the current mortgage bond pricing landscape.