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Economic Insights: Navigating Inflation, Mortgages, and Consumer Sentiment – 9/18/2023

Last week, we witnessed a mix of economic updates, encompassing various facets of the financial landscape, including inflation trends, consumer sentiment, and the weekly fluctuations in mortgage rates and unemployment claims.

Inflation Sees a Modest Uptick in August

On September 13th, the latest monthly inflation data was released, revealing a 0.3 percent increase in core inflation for August compared to July. This figure slightly exceeded the expected 0.2 percent rise and surpassed July’s 0.2 percent increase. According to the Consumer Price Index, August recorded a year-over-year inflation rate of 3.7 percent.

Zooming out for a broader perspective, inflation in the past quarter increased by 2.4 percent compared to the same period last year. This represents a decrease from the 5.0 percent observed in the previous quarter and marks the most modest inflation rate since March 2021. As we move into September, all eyes are on the Federal Reserve’s upcoming meeting. With current inflation exceeding the Fed’s 2.0 percent target, speculation abounds about the possibility of an impending interest rate hike or whether the existing rate adjustments will be given more time to take effect.

Shifts in Mortgage Rates and Employment Landscape

The current 30-year fixed mortgage rate is hovering at around 7.51 percent, marking one of the highest rates seen in two decades. This represents an increase from August when rates averaged 7.18 percent, and it’s affecting potential homebuyers. Meanwhile, the 15-year fixed mortgage rate remains close to 6.51 percent, mirroring August’s average of 6.55 percent.

Comparing the current mortgage rates to those of the previous week, we’ve seen a marginal decline in the 30-year fixed rate from 7.55 percent to 7.51 percent. The 15-year fixed rate remains relatively stable at 6.51 percent, with the previous week’s average at 6.52 percent. These rising interest rates appear to be impacting the broader economy, with an estimated 6.4 million individuals unemployed, translating to a 3.8 percent unemployment rate. In August, the U.S. Department of Labor’s Bureau of Labor Statistics recorded 1.8 million claims for unemployment benefits.

Consumer Sentiment: A Slight Dip

The University of Michigan’s consumer sentiment report for the month revealed a minor decrease in consumer optimism. While the index stood at 69.5 in August, it dipped to 67.7 in September.

This dip suggests that despite the declining inflation rates, a sense of uncertainty persists among consumers. This could be attributed to the possibility of interest rate hikes and a subtle slowdown in the job market. While the prevailing sentiment remains optimistic, there is a discernible shift in the trend.

Looking Ahead

The upcoming week holds promise for updates on mortgage rates, and September 20th marks the Federal Reserve’s next meeting. For many, the focal point will be the Fed’s decision on interest rates—whether they will opt for another increase or choose to maintain the status quo for the near future.

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