Mortgage rates aren't likely to change much for the first week and a half of June, but after June 12, no one knows what rates will do.
Many factors influence mortgage rates, but over the past two-plus years, two have had the biggest impact: the monthly Consumer Price Index and the Federal Reserve's Monetary Policy Committee meeting, both of which, by a rare calendar coincidence, take place on June 12.
The CPI, which measures inflation, has the power to move mortgage rates on its own. Higher than expected inflation pushes interest rates up, while lower than expected inflation pushes interest rates down slightly. Decisions at the Fed's meetings can also raise or lower interest rates. Financial markets typically take several days or weeks to digest one decision and then react to another. In May, the Fed meeting ended at the start of the month, and the CPI report was released on the 15th.
However, the market has only five and a half hours to consider between the June reports. First, the May CPI will be released at 8:30 AM ET on June 12th. At 2 PM, the Federal Reserve's monetary policy statement will be released, along with the central bank's latest economic forecasts. Thirty minutes after the policy statement and forecasts, Fed Chairman Jerome Powell will hold a press conference.
There is a ton of information out there that could move the market in a single day. The rapid succession of events could accelerate mortgage rate movements and push rates sharply higher in either direction. But it is just as likely that rates will barely react at all. That will depend on whether the Consumer Price Index or the Federal Reserve delivers a surprise.
A lot of uncertainty
Mortgage rates rise and fall depending on investors' economic outlook. An unexpectedly bright or dark economic report can reset that outlook and send rates surging higher or lower. Inflation measures such as the CPI have this power. The Fed tries hard not to spook investors. But it too has the power to shake up markets, whether intentionally or not, when it revises its economic forecasts.
If some surprising news breaks on June 12th, mortgage rates could move sharply. Or they could proceed as expected without affecting the mortgage market at all. The outcome of that day won't be known until after Chairman Powell's press conference.
Word of the month: “Volatility”
At the end of May, the Cleveland Fed was projecting that core consumer prices would rise about 3.6% in May, the same as in April, in its June 12 CPI report. Based on this forecast, 30-year fixed-rate mortgages were between 7% and 7.25% at the end of May. Rates are likely to remain within this range through June 11 as the market awaits the big day.
Then June 12th comes along and the CPI report is released. If the core CPI falls substantially, say below 3.4%, mortgage rates may fall. If the core CPI rises above 3.6%, mortgage rates may rise. If the core CPI is 3.5% or 3.6%, the mortgage market may yawn without much movement.
In the coming hours, the Fed and Chairman Powell may either strengthen or weaken the impact of the CPI report. Financial markets expect the Fed to cut short-term interest rates in September or November, and investors will be listening for signs that the central bank will act sooner or later than that. Whatever happens, the day's events could determine the trajectory of mortgage rates for weeks to come.
“We expect to see more volatility in interest rates going forward as the Fed and investors await more conclusive evidence that inflation will return to lower, more stable and more predictable conditions,” Orfe Dibongi, senior economist at Zillow, said in a news release.
If you're trying to decide whether to get a variable or fixed mortgage rate, talk to your loan officer who has the most up-to-date information.
Other forecasters' predictions
Fannie Mae and the Mortgage Bankers Association revised their mortgage rate forecasts upward in May as inflation persisted, though Fannie Mae's forecast is less optimistic than the MBA's.
What happened in May
The average interest rate on a 30-year fixed-rate mortgage was 7.01% in May, down slightly from an average of 7.04% in April. 30-year mortgages began the month above 7.25% but then dipped below 7% for several weeks before recovering back above 7% last week.