The mortgage rates have dropped for the fifth week in a row

The Fed’s Inflation-Measurements Strategy: An Outlook for Service Pricing and Wage Control in the U.S.

The cost of services such as travel and restaurant meals continued to push inflation higher, despite a decrease in the price of gasoline.

Between February and March, prices went up. The cost of shelter has gone up a lot. Food prices were not changed while energy prices fell.

“Inflation remains high despite the fact that we have seen some signs of inflation being moderated over the past six months,” the Treasury Secretary said this week. “Commodity prices have eased. Supply-chain snarls are being fixed. The global financial system has proven to be resilient over time.

The Fed’s effort to curb inflation has been complicated by turmoil in the banking industry, following the collapse of two big regional banks last month.

That acts like an additional brake on the economy, amplifying the Fed’s own rate hikes. Fed policymakers will have to weigh the uncertain effects of those tighter credit conditions in deciding how much higher interest rates need to go.

The Fed’s job is to be paranoid. That’s what they pay us for,” said Austan Goolsbee, president of the Chicago Federal Reserve Bank, this week. In times like these we need to dig into a lot of new information, because of the wild shocks and financial stresses.

Goolsbee told the Economic Club of Chicago Tuesday that the most worrisome price hikes today are in the services sector, which was pummeled early in the pandemic and still hasn’t adjusted to a rapid rebound in demand.

Goolsbee said the economy is still coming back from a bad time. “Goods inflation has come way down,” he added. Spending in the areas where it is discretionary, like travel, hotels, restaurants, leisure, and recreation, were stagnant for a few years, but demand returned and inflation has proved particularly persistent.

Unlike housing and manufacturing, which are especially sensitive to rising interest rates, the service industries may be less responsive to the Fed’s inflation-fighting moves.

One encouraging sign for the Fed is that wages — an important factor in service prices — have cooled in recent months. Average wages in March were 4.2% higher than a year ago, compared to a 4.6% annual increase in February.

Mortgage Rate Fluctuations During the Equilibrium Recovery and Recovery Cycle in the Small-Scale Fannie Mac Mortgage Rate Survey

Freddie Mac gets a large number of applications from thousands of banks and other finance companies across the country. Only borrowers who put 20% down and have excellent credit are included in the survey.

“As long as the economy continues to see progress on inflation, that should help keep mortgage rates at the lower end of the 6% to 7% range that we’ve seen over the past few months,” Hale said. Any surprises in the data will cause some fluctuations in that range.

The average rate dropped lower this week as bond yields bounced back from last week’s lows following economic data including last Friday’s jobs report that signaled a moderating, but still relatively strong job market, said Danielle Hale, Realtor.com chief economist.

“On the other hand, overall inflation slowed more notably, and even core inflation on a month-to-month basis eased somewhat, a sign that the Fed’s tightening is having the desired effect,” she added. If the Fed decides to raise rates, we are very likely to be at the end of the tightening cycle.

The Fed doesn’t set interest rates on mortgages directly, but it can affect them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. Mortgage rates tend to follow Treasury yields when Treasury yields go up and down.

Recent drops in rates have led to some buyers and a rise in mortgage applications last week, according to the Mortgage Bankers Association.

“Despite the huge shifts in market momentum, home sellers can count on the usual seasonal trends tipping the scales a bit further in their favor while home shoppers should expect a fair amount of competition that should ease as we move later into the year,” she said.