Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said core inflation rose less than forecasters expected in November, in part because the pace of home price growth slowed. said.
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Mortgage rates and long-term bond yields fell on Friday after the Federal Reserve’s recommended inflation measure showed prices rose more slowly than expected in November.
The annual growth rate in the personal consumption expenditures (PCE) price index was 2.4%, up from 2.3% in October, the Bureau of Economic Analysis said Friday.
However, the 0.11% month-on-month increase in core PCE, which excludes volatile food and energy prices, was the smallest since May.
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Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note to clients that one reason why core inflation rose slower than forecasters expected in November was because the pace of rising housing costs He said this is because the economy is slowing down.
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“Fundamentally, the near-term outlook for inflation is positive,” Tombs said. “Energy prices are flat, the labor market remains cool, rent catch-up growth is fading, and supply chains are operating normally. But tariffs and deportations threaten to disrupt the peace.”
The 10-year Treasury yield, a barometer of mortgage rates, fell by as much as 9 basis points after the release of the latest inflation data. The 30-year fixed-rate mortgage rate fell 10 basis points to 7.04% on Friday, according to an index compiled by Mortgage News Daily.
This could be a welcome relief for prospective home buyers. They say they expect Federal Reserve policymakers to take a more cautious approach to rate cuts next year, although they rose on Wednesday and Thursday after approving a third rate cut in 2024. I warned you.
Mortgage interest rates recover
The 30-year fixed rate conforming mortgage rate hit a 2024 low of 6.03% on Sept. 17 on expectations for a Fed rate cut, according to RateLock data tracked by Optimal Blue.
But as the Fed begins lowering rates, investors in the bond markets that fund most mortgages say the Fed will make any further progress toward achieving its goal of cutting inflation to 2% next year. Taking the outlook that the market would be difficult into consideration seriously, mortgage interest rates rebounded fiercely.
Adding to those concerns are investors’ concerns that President-elect Trump’s proposed tax cuts, tariffs and deportations could lead to inflation.
Wall Street Journal reporter Nick Timiraos said economic forecasts released this week detailing Fed policymakers’ expectations for growth, unemployment and inflation suggest they share similar concerns. told PBS NewsHour anchor Jeff Bennett.
Federal Reserve Chairman Jerome Powell, responding to questions at a press conference Wednesday, said some Fed policymakers are considering Trump’s proposed policies in their economic forecasts, while others are not. said.
“However, the analysts I spoke to after the meeting said there had not been enough changes in the economy in recent months to justify the changes to the inflation forecasts we made today,” Timiraos said on Wednesday. “So they seem to be more receptive to Trump-related policy changes.”
Increase in annual inflation rate
Annual inflation, as measured by the PCE price index, hit its lowest level in 2024 at 2.1% in September, before rising in October and November.
Annual core PCE, which excludes food and energy costs, was almost flat at 2.8% in November.
Forecasters at Pantheon Macroeconomics expect core PCE inflation to fall to about 2.5% in March, “and then pick up slightly for the rest of the year,” Toombs said. “Bold action on tariffs and large-scale deportations pose important upside risks to this forecast.”
Lawmakers were negotiating a last-minute funding bill Friday to avert a government shutdown after a bill to raise the debt ceiling backed by President Trump failed to pass the House.
NPR’s Scott Horsley says raising the debt ceiling would help President Trump fulfill his campaign promise to extend the 2017 tax cuts, but the national debt is expected to increase by $4 trillion over the next 10 years. There is.
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