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Investors cheered Thursday after a consumer price index revealed that inflation slowed at a faster pace than expected in June, paving the way for the Federal Reserve to cut interest rates.
Following this news, the yield on the 10-year Treasury note, a leading indicator of mortgage rates, fell sharply shortly after the inflation data was released on Tuesday.
Consumer Price Index Home prices rose 3% in June from a year earlier, less than investors had expected, according to data from the Bureau of Labor Statistics. Part of the slowdown is in the housing market, as official inflation data shows rent growth is slowing.
Jay Parsons | Rental Housing Economist
“It’s finally happening.” I have written Real estate economist Jay Parsons has said for more than a year that falling rents are a sign of a sharp drop in national inflation.
The data showed rent prices rose 0.3%, the lowest rate of increase since August 2021, when a private index showed rent prices had risen sharply.
According to the Zillow Observed Rent Index, rent growth peaked in February 2022 and then declined for 18 months before stabilizing at annual growth of just over 3%.
Home prices account for about a third of inflation. When rents and other commodity prices soared during the COVID-19 housing boom, inflation also soared. But the study found there was a long lag time before inflation data reflected falling rents, which helped keep inflation high.
“House price inflation has slowed significantly as rent growth for new leases in the private sector dataset has been weak throughout the year,” Parsons wrote.
Inflation eases in June: CPI
Core CPI, which excludes volatile food and energy prices, rose 3.3% year-on-year in June, improving from a 3.4% year-on-year increase in May.
Federal Reserve A favorable indicator of inflationThe Commerce Department’s Bureau of Economic Analysis announced on June 28 that the personal consumption expenditures (PCE) price index for May fell 2.6% from the same month last year. The June PCE index will be released on July 26.
Mortgage interest rates remain high due to the widening of the “30-10 spread”
Before the pandemic, mortgage rates were around 2 percentage point increase That’s lower than the yield on the 10-year Treasury note. But the “30-10 spread” between mortgage rates and the 10-year Treasury yield has widened by 3 percentage points during the pandemic, magnifying the impact of rising rates on mortgage borrowers.
Matthew Gardner, an economist at Gardner Economics in Seattle, said that while the 30-10 gap had gradually narrowed to 2.6 percentage points as of Monday, it’s still “significantly higher than it should be.”

Matthew Gardner | Gardner Economics
“Banks have widened the spreads,” Gardner says. “They believe that at some point mortgage rates will go down, people will refinance their mortgages and banks will make less money, so the risk premium is going up.”
Together 10-Year Government Bond Yield After falling 10 basis points on Thursday to 4.17%, the interest rate on a 30-year fixed-rate mortgage would be about 6.17% if the 30-10 spread remained at pre-pandemic levels. One basis point is 1/100 of a percentage point.
Instead, 30-year fixed-rate loans averaged 6.88% on Wednesday, he said. Optimal Blue.
If mortgage rates also fall by 10 basis points on Thursday, the 30-year mortgage rate would be around 6.78%. Optimal Blue’s data is delayed by one day, but an index maintained by Mortgage News Daily shows that the 30-year mortgage rate is It fell 14 basis points on Thursday..
Mortgage rates, which surged to their highest levels in more than two decades last year following a series of aggressive Federal Reserve rate hikes, now appear to have room to fall.
“Over the past two years, the economy has made significant progress toward the Federal Reserve’s 2 percent inflation objective, and labor market conditions, while still strong, have cooled,” Fed Chairman Jerome Powell said in testimony before House and Senate members this week. “Reflecting these developments, risks to achieving our employment and inflation objectives are becoming more balanced.”
But Powell said policymakers continue to make decisions “from meeting to meeting” and want to see more evidence that inflation is moving sustainably toward the Fed’s 2 percent target before cutting rates.
another Report on Thursday Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said in a client note that the Labor Department reported that initial jobless claims fell to 222,000 last week, down from 239,000 the previous week and “well below” the 235,000 that economists had expected.
Unemployment insurance application This year’s trendsAllen said seasonal fluctuations make it difficult to say whether the trend will reverse.
“Our broad view is that the upward trend in initial jobless claims will continue as slowing consumer demand and high interest rates lead companies to cut jobs to protect profit margins,” Allen wrote. “This is supported by several leading indicators, including WARN’s job cut announcements data and a series tracking consumer job loss fears.”
Pantheon Macroeconomics projects the Fed will cut short-term rates by 25 basis points in September and by 1.25 percentage points by the end of the year.
of CME FedWatch ToolsThe Fed, which tracks futures markets to gauge future moves, put the chances of a rate cut in September at 94% after the latest CPI data was released, up from 73% on Wednesday and 53% on June 11.
Futures markets are pricing in a 49% chance that the Fed will cut rates by at least 75 basis points by the end of the year, up from 27% on Wednesday and 14% on June 11.
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