Market Update: Rates Relatively Unchanged; Consumer Price Index, and Fed Interest Rate Decision Coming Up This Week

Blog posted On December 12, 2022

Mortgage rates ended last week at levels relatively unchanged from the week before. This week, the market is eagerly awaiting data from the consumer price index. This could have a huge impact on rates if it shows anything unexpected. The Federal Open Market Committee (FOMC) will announce their decision on the benchmark interest rate the following day. Their decision will be heavily influenced by the consumer price index data.

The consumer price index tracks the changes in the average price of a fixed basket of goods and services sold to final consumers and is one of the main inflation-measuring methods. This week’s consumer price index will have a huge impact on rates, stocks, and bonds. Inflation is the enemy of bonds and bonds influence the direction of rates. So if November’s consumer price index comes in hotter than expected, it could mean bad news for the bond market. October’s consumer price index showed that inflation cooled more than expected, giving the markets a huge boost and hope for a lower fed funds rates increase in December. The monthly climb was 0.4%, the same pace as September, but a slower pace than the expected 0.6% climb. Year-over-year, inflation rose 7.7%, much cooler than 8.2% the month before. Economists had expected an 8% annual rise. Core inflation, stripping food and energy rose 0.3%, half the pace of 0.6% the month before. Annual core inflation was lower than the previous month as well.

What adds to the suspense of tomorrow’s inflation report is the FOMC announcement on the benchmark interest rate hike the next day. The FOMC sets the federal funds rate. The federal funds rate will influence mortgage rates but not set them exactly. When the Fed raises rates, mortgage rates typically go up. When the Fed lowers rates, mortgage rates typically go down. If inflation comes in hotter than expected, many predict that the FOMC will increase the benchmark rate by 0.75%. If it comes in at or below expectations, then it’s likely the hike will be 0.50%.

When certain reports or events could influence rates, it could be a good idea to consider a rate lock, which will ensure your rate doesn’t go higher but allows you to float it down if rates fall. If you would like to learn more about what's going on in the market or consider our lock options, let us or your agent know.

Sources: Bloomberg