Inflation and economic growth are the two main factors driving mortgage interest rates and their skyrocketing path higher since November 2022. And the rub……….. the Federal Reserve won’t signal an end to its rate policy of raising rates, or not lowering rates, until it sees lower inflation combined with a much cooler economy.
We saw the Retail Sales report this week, and unfortunately it did not show a cooling economy. In fact, there were gains in all of the biggest categories of the report. It was also the third month in a row that each month has been stronger than the last.
It may seem good from a common sense standpoint that strong retail sales are a good thing. However, what this tells the Fed is that people are still spending. And as long as people are spending, the demand for goods and services remains high. And when there is strong demand, prices will rise. And that is the definition of inflation, which the Fed is desperately trying to tame.
The bottom line – until inflation is in check, mortgage rates will stay high. People – stop spending!