Inflation Comes In Hotter Than Expected

What’s Happening Today

Mortgage rates are starting the day mostly steady even after a wave of major economic reports. Inflation came in hotter than expected, economic growth slowed sharply, and housing activity showed mixed signals. Markets appear to be balancing stronger price pressures with signs of cooling economic momentum, which is helping keep rates range-bound for now.

Inflation Runs Hot (PCE Report)

The Fed’s preferred inflation gauge (PCE) for December came in hotter than expected.
Headline inflation rose 0.4% month over month and 2.9% year over year.
Core inflation rose 0.4% month over month and 3.0% year over year.
Shelter costs rose 0.3% and remain a key driver of inflation.
Streaming services surged 19.5% in December and contributed to the monthly increase.
Inflation may improve later this year as stronger 2025 readings drop out of the calculation.

Inflation remains sticky, but markets are looking ahead to potential improvement in the months ahead.

Economic Growth Slows (GDP)

First reading of Q4 GDP showed 1.4% annualized growth vs 2.8% expected.
Government spending cuts related to the shutdown reduced growth by about 1.15%.
Consumer spending remained solid, with private demand rising 2.4%.
Full year 2025 growth is tracking near 2.25%.

Slower economic growth can help ease inflation pressure and may support stable or lower rates over time.

Housing Market Shows Strength (New Home Sales)

New home sales reached a strong pace of 745,000, the highest level in nearly four years.
November sales jumped 15%, followed by a modest 1.7% pullback in December.
Median home price was $414,400, up 4.2% month over month.
Inventory shows 7.6 months of supply on paper, but only about 2 months of completed homes are available.

Limited supply and strong demand continue to support home prices despite affordability challenges.

Policy and Market Uncertainty

The Supreme Court ruled against emergency tariffs, but policy uncertainty remains.
Lower tariff revenue could lead to more government debt issuance.
Markets have largely taken the news in stride so far.

Ongoing policy developments could create future volatility, but immediate rate impact has been limited.

Final Takeaway

Today’s data paints a mixed picture. Inflation remains elevated, but slower economic growth and strong housing demand are helping keep mortgage rates relatively stable for now. If inflation cools and economic momentum slows further, rates could improve later this year, but volatility may continue in the short term.

If you’re thinking about buying, refinancing, or planning your next move, reach out to discuss how today’s market conditions impact your strategy.