It was a light week for economic data, and investors mainly focused on the central banks of the US and Europe. Comments from Fed and ECB officials remained favorable for bonds, and mortgage rates moved down a little during the week, to the lowest levels of the year.
At the beginning of the year, the consensus outlook was for a moderate pace of economic growth in the US and for mortgage rates to slowly climb higher. Despite a weather-related slowdown over the winter, the growth outlook appears to be on target, yet mortgage rates have moved lower this year.
There are several factors which have contributed to the decline in mortgage rates this year. One reason is that inflation has remained low. The major indicators, such as the Consumer Price Index (CPI) and the PCE index, show that core inflation is well below the Fed’s target level of 2.0%, and it is expected to remain low in coming months. Expectations for future inflation are a major factor in setting mortgage rates.
The conflict in Ukraine is also favorable for mortgage rates. During periods of uncertainty, investors typically shift to relatively safer assets, increasing the demand for mortgage-backed securities (MBS). Another influence has been the expectation that the European Central Bank (ECB) will begin a bond purchase program similar to the one used by the Fed over the last few years. The expected added demand for bonds from the ECB has pushed down rates around the world.
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