Look, according to Redfin News, we're heading into a critical week for interest rates, and it all comes down to what we see in the inflation numbers. Every time the Consumer Price Index comes out, it has real potential to move mortgage rates one way or the other, and this Wednesday's report is going to be under the microscope. The big question on everyone's mind is whether the Federal Reserve is done hiking or if there's still more to come.
Last week, rates actually eased down a bit as Fed officials kept saying the same thing repeatedly—more rate increases are likely, but they're probably going to pause for now. When the Fed released the minutes from their September meeting, the vote to raise rates was unanimous, though the reasoning varied. Each Fed member had their own particular concerns, whether it was managing risk or the worry that inflation might spread across more categories. It's looking increasingly unlikely that they'll hike again in October unless the new CPI data surprises everyone to the upside. But December is still very much a live possibility.
There's something else worth paying attention to. Both the New York Fed's consumer expectations survey and the University of Michigan's sentiment index showed that consumers are expecting higher inflation over the next year. This seems to be driven mostly by what's happening with energy prices lately. Now, if those expectations stick around and don't drop back down, the Fed gets nervous about what they call "unanchoring" on inflation expectations, which would probably push them to raise rates more.
This week's economic calendar really matters. Wednesday we get the CPI report, and Thursday brings both the Producer Price Index and the September retail sales numbers. Together, the CPI and PPI should give us a pretty good read on where core PCE inflation, which is the Fed's preferred measure, is heading. Based on what Fed officials have been signaling, the numbers would need to show core PCE inflation coming in above a certain threshold each month to make another rate hike in late October realistic.
What I'm seeing locally in the Bay Area and out in the East Bay is that buyers are still waiting to get a clearer picture before making moves. These inflation reports and Fed decisions are going to determine whether we see mortgage rates stabilize or move higher again, and that's going to affect how many people can actually afford to buy. Sellers are in a bit of a holding pattern too, trying to read the tea leaves on where we're headed next.
