📊 John's Finance Corner: Core PCE Comes in Hot: What It Means for Mortgage Rates This Week
The Federal Reserve’s preferred inflation gauge—the Core Personal Consumption Expenditures (PCE) Index—came in slightly hotter than expected for May, raising fresh concerns about the timing of future rate cuts.
🔥 Core PCE: Still Above Target
- Headline PCE rose 0.1% in May, bringing annual inflation to 2.3%—in line with forecasts.
- Core PCE, which excludes food and energy, rose 0.2% for the month—above the 0.1% forecast.
- Annual Core PCE now sits at 2.7%, higher than expected and moving in the wrong direction.
Shelter costs, which account for roughly 18% of Core PCE, are a major contributor to the elevated reading. However, government shelter data lags by 12–13 months and doesn’t reflect current market conditions. Real-time rental data suggests that shelter costs have declined significantly—meaning true Core PCE may be lower than reported.
📅 Key Economic Data Ahead
Despite the short holiday week, markets are bracing for a flood of labor data that could sway bond yields and mortgage rates:
- Tuesday: Job openings report
- Wednesday: ADP private payrolls
- Thursday: Initial and continuing jobless claims, plus the BLS jobs report
The BLS report has consistently overstated job growth in recent years, only to revise figures downward later—after bond markets have already reacted. A more realistic report this week could help stabilize rates.
- Watch for the unemployment rate: Any uptick could support lower bond yields and mortgage rates.
📉 Bonds and Rates: Improvement with Caution
Mortgage rates and bond yields have improved over the past few weeks, but this week’s labor data could either reinforce that trend—or reverse it.
- Volatility is expected, especially if job data surprises to the upside.
- The Treasury Department is working on key initiatives that could positively impact bond markets and rates in the coming months.
🧭 Bottom Line
Core inflation remains stubbornly above the Fed’s target, but lagging shelter data may be distorting the picture. With critical labor reports on deck, this week could be a turning point for mortgage rates—either continuing the recent improvement or triggering a pullback.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
