ShareThe Federal Reserve began cutting its short-term banking rate in September when inflation was at 2.4%, and expectations were for some further deceleration. However, inflation has continued to rise in recent months, and in January, consumer price inflation increased to 3%. This will delay any rate cuts by the Fed this year until there are clear signs that either inflation is trending toward 2% or the economy begins to face net job losses.
Meanwhile, the 10-year Treasury yield and mortgage rates have not followed the trajectory of the Fed’s rate cuts since September. Instead, mortgage rates have been trending modestly higher over the past five months. Progress on mortgage rates is only expected to occur when inflation is contained. The housing shelter inflationary measure showed a 4.4% increase in January, though this high still represents the slowest rise in three years. Perhaps some temporary oversupply in new apartment units will help restrain this component in the coming months and ultimately lead to lower inflation — and, importantly, lower mortgage rates.
