PCE Inflation Eases as Mortgage Rates Stabilize

What Is Happening Today

Mortgage rates are slightly higher this morning as markets digest a mix of easing inflation data and steady labor conditions. Stocks are modestly higher after President Trump backed away from tariff threats tied to negotiations with the EU and Greenland, which helped calm some of yesterday’s geopolitical concerns. Bonds benefited from that move yesterday, but are giving back a small portion of those gains this morning.

The focus today remains on inflation and labor data. The delayed Personal Consumption Expenditures report shows encouraging progress on inflation, while GDP growth remains solid and jobless claims continue to reflect a low firing environment. Housing data softened in December, but seasonal factors suggest the slowdown may be temporary.

Inflation Update: PCE Data Shows Progress

Headline and Core PCE eased from 2.8% in September to 2.7% in October, then rose back to 2.8% in November
Core monthly readings remained soft at 0.21% in October and 0.16% in November
Two month annualized inflation pace is roughly 2.4%
Three month run rate is near 2.2%
Shelter inflation slowed to 0.12% in November and 3.3% year over year

Inflation continues to trend lower beneath the surface, giving the Fed more room to consider rate cuts later this year.

Economic Growth Remains Solid

Q3 GDP was finalized at 4.4% annualized growth
Previous estimate was 4.3%
First three quarters average growth now sits near 2.5%
Q1 was -0.6%, Q2 was 3.8%, Q3 was 4.4%

Economic growth remains resilient and balanced, reducing recession risk while allowing inflation to continue cooling.

Labor Market Stays Steady

Initial jobless claims held at 200,000
Lower than the 212,000 estimate
Continuing claims fell by 26,000 to 1.849 million

The labor market continues to show low layoffs and steady employment, supporting consumer confidence without reigniting inflation pressures.

Housing Activity Slows Temporarily

Pending Home Sales fell 9.3% in December
Market expected only a 0.3% decline
Sales are now down 3% year over year
November was the strongest pace in nearly three years
Holiday timing, weather, and fewer working days impacted activity

This appears to be more of a seasonal pause than a shift in trend, with a rebound likely as spring approaches.

Final Takeaway

Mortgage rates are slightly higher this morning, but remain in a relatively stable range as inflation continues to cool and the labor market stays balanced. Encouraging progress in PCE inflation and steady GDP growth support the broader case for lower rates later this year, even as near term volatility persists.

With inflation gradually easing and housing activity expected to recover from seasonal softness, the overall backdrop remains constructive for buyers and refinancers heading into the next phase of the market. If inflation continues to cooperate, mortgage rates should have room to improve as we move further into the year.