Amid rising inflation, mortgage rates in the U.S. are set to remain elevated, with new forecasts pushing back the anticipated relief for homebuyers to the latter part of the year.
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Consumer price index (CPI) data issued Wednesday by the Bureau of Labor Statistics indicates a persistent inflationary trend has led to a shift in expectations; analysts now predict that the Federal Reserve's first rate cut will not occur until September at the earliest.
The adjustment comes after March's CPI report showed a higher-than-anticipated rise in core inflation, maintaining pressure on the Fed to uphold current interest rates to combat inflationary forces.
CME FedWatch Tool, a website that tracks the probabilities of Fed policy moves, says that the market is now predicting the onset of easing in September, originally expected in June; projections now outline only two quarter-point rate cuts for the year, a decrease from the previously expected three.
"Goldilocks has left the building," Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, told Newsweek on Wednesday. "Inflation isn't coming down anymore, and rate-cut hopes are going to be pushed off even further into the future.
"For those hoping for six rate cuts this year, that ship has sailed; and now the question is whether or not we will even get the three rate cuts that many believed was possible as recently as the end of Q1," Zaccarelli said.
Economists say that, for the housing market, that means higher mortgage rates for longer, but it still shouldn't deter the Fed from beginning its easing cycle.
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"While today's numbers are disappointing, they should not deter the Fed from their planned interest-rate cuts," Groundwork Collaborative chief economist Dr. Rakeen Mabud told Newsweek. "High interest rates won't bring down the high housing and energy costs that are driving the affordability crisis for millions around the country."
Reflecting the immediate impact of the inflation data, the current mortgage rate spiked on Wednesday after the CPI report was issued, which Mortgage News Daily pegged at an average of 7.29 percent.
The surge brought rates back over the 7 percent threshold seen in previous fluctuations.
The inflation report said the consumer price index for March accelerated at a month-over-month rate of 0.4 percent, matching the rise seen in February. Annually, the CPI saw a 3.5 percent increase, up from 3.2 percent in the previous month.
The acceleration is primarily attributed to hikes in energy prices and persistent rent increases, contributing over half of the month's overall inflation.
The core CPI, which strips out volatile food and energy sectors, also rose by 0.4 percent from February, maintaining the pace seen in the previous month. Year-over-year, core inflation held steady at 3.8 percent, reflecting ongoing price pressures that fall outside the more unpredictable categories.
Steadiness in core inflation, particularly in service sectors excluding housing and energy, escalated to 4.8 percent from a year ago, the highest increase since April of last year.
As potential homebuyers look towards the Fed for relief from high borrowing costs, the likelihood of rate cuts in the near term appears slim. The mortgage markets, sensitive to shifts in Fed policy, are now bracing for an extended period of higher rates.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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