Weakening Inflation Data Creates Dilemma for the Fed
The 10-year treasury yield, which is a key benchmark for mortgage rates, has been a rollercoaster the past few weeks. After the July 4th holiday, the 10-year yield hovered around 3.85%. However, following the release of the economic data we discussed last week, the yield surged past 4.05%, reaching its highest level since March. But, as of Thursday morning, the 10-year yield has retreated to 3.81%. The primary catalyst for this reversal was the softer-than-expected Consumer Price Index (CPI) data, which was announced on Wednesday. The CPI figures revealed a decrease across the board, indicating the ongoing weakening of inflation.
This shows that the Fed rate hikes are having the desired results. The discussion remains the same: How many more rate hikes are needed? While the market still anticipates a 25 basis point increase in July, the possibility of a second hike remains uncertain. The labor market continues to demonstrate strength, extending the opportunity for a "soft landing." The Federal Reserve has consistently emphasized its commitment to achieving its inflation target of 2%. The question is, will we need more than one additional rate hike to achieve that goal?
