The U.S. inflation rate cooled to 3 percent last month, its slowest pace in two years, the Labor Department said Wednesday. But mortgage rates haven’t gotten the memo yet — the average rate on 30-year mortgages increased to 7.07 percent this week, up from 6.95 percent last week, according to Bankrate’s weekly national survey of large lenders.
“Incoming economic data continue to send mixed signals about the economy,” says Joel Kan, deputy chief economist at the Mortgage Bankers Association.
Mixed signals indeed. The Federal Reserve took a break from inflation-fighting last month, but the mortgage market seems to think the central bank will resume rate increases this month.
Mortgage rates remain chained to inflation, a metric the Fed has been moving aggressively to control. While Fed policy guides the mortgage market, the central bank doesn’t directly set fixed mortgage rates. The most relevant benchmark is the 10-year Treasury yield, which has bounced around in recent weeks.
“Further disinflation in the coming months should help support more, albeit modest, downward movements in Treasury yields, which mortgage rates tend to follow,” says Orphe Divounguy, senior economist at Zillow.
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Source: finance.yahoo.com
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