John’s Finance Corner: Inflation Ticks Higher as Mortgage Rates Hold Near Multi-Year Lows
Last week, we received the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) report for December. The data showed inflation came in slightly higher than forecast, with headline inflation rising 0.4% for the month, pushing the annual rate to 2.9%.
Core PCE, which excludes food and energy, also increased 0.4%, bringing the annual core rate to 3.0%. One unexpected driver of the increase was higher costs in video streaming services, as several platforms raised subscription fees, contributing to a notable jump in services inflation during the month.
Looking ahead, there is potential for improvement in the annual inflation readings. As higher inflation numbers from early 2025 roll out of the 12-month calculation, we may begin to see some natural easing in the year-over-year figures something markets will be watching closely.
On the growth side, the first estimate of Q4 2025 GDP showed the economy expanded at an annualized rate of 1.4%, down sharply from 4.4% in Q3. The slowdown was largely attributed to reduced government spending during the record shutdown.
In the labor market, initial jobless claims fell to 206,000, though holiday timing around Valentine’s Day and Presidents Day likely influenced the decline. Meanwhile, continuing claims rose to 1.869 million, signaling that unemployed workers may be taking longer to secure new employment a subtle but important sign of softening.
Another significant development last week was the Supreme Court overturning tariffs. Markets reacted calmly, which was a positive surprise. The muted response allowed the 10-year Treasury yield to remain near its lowest level since early December.
With the continued narrowing of the spread between the 10-year Treasury and mortgage rates, the average 30-year mortgage rate is now hovering near levels not seen in several years. While several factors could still impact bonds and rates in the near term, there is a strong possibility that average interest rates could dip below 6% in the coming weeks or months.
If that happens, we could see an increase in buyer demand potentially leading to rising home prices and increased competition in the housing market.
As always, watching bond yields will provide the clearest signal for where mortgage rates may head next.
If you’re considering buying or refinancing, now is a smart time to review your options before demand increases.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
