Weekly Mortgage Rates Edge Down as the Fed Waits for Decisive Drop


Average mortgage interest rates were slightly lower this week as inflation data met market expectations, but hopes for a rate cut from the Federal Reserve remained dim. Mortgage rates may end up treading water until economic trends are decisive enough for Fed action to be inevitable.

The average rate on the 30-year fixed-rate mortgage fell to 6.98% in the week ending May 16, according to rates provided to NerdWallet by Zillow. It was a decrease of five basis points from the previous week. (A basis point is one one-hundredth of a percentage point.)

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Inflation may be moderating

On May 15, the Bureau of Labor Statistics released the latest consumer price index, which is a key measure of the rate of inflation. The CPI creates a virtual “market basket” of consumer goods and services, covering categories like gas, apparel and dining out. By measuring how these prices change over time, the CPI serves as a useful gauge of the rate of inflation.

The most recent CPI, which covered April, showed a 3.4% year-over-year increase in prices. That doesn’t sound great, but it’s a decrease from March, when it was 3.5%.

This step in the right direction still leaves the rate of inflation well over the Federal Reserve’s stated goal of 2%. Inflation likely needs to slow more decisively before the Fed will consider cutting interest rates. Keeping rates higher — thus making it harder to borrow money — is one way the Federal Reserve tries to hobble inflation.

But the Fed exercises caution

This spring, it’s almost felt as though you could watch the chances of a Fed rate cut wane in real time. In early March, Federal Reserve Chair Jerome Powell told Congress, “If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.” The next day, Powell went so far as to say that the Fed was “not far” from being able “to begin to dial back the level of restriction.”

But by the beginning of April, Powell was walking it back. We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%,” he said at the Stanford University business school. A few weeks later at a forum in Washington, he clarified that, “If higher inflation does persist, we can maintain the current level of restriction for as long as needed.”

Now it’s May, and we’ve gone from “not far” to “as long as needed” to something like well, at least we aren’t planning to raise rates.

This week, Powell told a panel of bankers in Amsterdam, “I don’t think that it’s likely, based on the data that we have, that the next move that we make would be a rate hike.” Though it’s essentially the same message as April — we’re going to hold interest rates steady — the very mention of higher rates is not what home buyers want to hear.

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