Mortgage rates have moved lower, benefiting borrowers and lenders while prompting lenders to remain ready for volatility as the Federal Reserve and markets weigh unemployment and inflation risks. Softening labor conditions are contributing to the downward trend, enabling larger lenders to generate revenue for investments in artificial intelligence and operational efficiencies. Rates likely have more room to fall, but declines will be uneven and sensitive to labor and inflation reports. Tariff-driven inflation has elevated price pressures, with core PCE at 2.9% and CBO data showing effective tariff rates on imports up about 18 percentage points. Unemployment has risen nearly a percentage point, increasing downside risks to employment and forcing the Fed to balance its dual mandate.
Mortgage rates have traded lower for now, which is a win for borrowers and lenders, said Geno Paluso, CEO at mortgage servicing software company Sagent. But lenders must stay prepared for continued rate volatility as the Fed and markets balance unemployment and inflation risks. Kevin Peranio, chief lending officer and partner at Paramount Residential Mortgage Group (PRMG), added that softening labor conditions are fueling the downward trend in mortgage rates, creating more revenue for larger lenders to invest in artificial intelligence and operational efficiencies.
Rates have further to fall and it has been sustained all year labor and inflation reports are critical to sustain the trend Peranio said. Volatility is expected as rates don't move down in a straight line. With inflation elevated due to tariff uncertainty, any decent jobs report can cause an immediate uptick in rates. Powell signaled Friday that inflation has moved closer to our objective and that upside risks had diminished.
The core Personal Consumption Expenditures (PCE) index reading currently stands at 2.9% as the effects of tariffs continue to accumulate, he said. According to the Congressional Budget Office (CBO), as of Aug. 19, the effective tariff rate on goods imported into the U.S. has risen by about 18 percentage points compared to 2024 trade flows. At the same time, the labor market is no longer overheated, the Fed chief noted.
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