Rate Volatility Continues, Rates Rise Again

Happy Friday from Local Mortgage!

Mortgage rates saw more volatility this week, driven largely by fluctuating oil prices and ongoing tensions in the Middle East. The latest economic data had little impact on financial markets, and the Fed meeting revealed no significant surprises. Mortgage rates finished the week slightly higher, with our best 30 year fixed conventional scenario at 6.49%.

As expected, the Fed left the federal funds rate unchanged on Wednesday for the fifth straight meeting at a range of 3.50 to 3.75%, and the meeting statement was nearly identical to the prior one. Of note, three of the twelve voting Fed officials dissented from the decision, preferring to raise rates by 25 basis points, an unusually high level of disagreement. New Fed Chair Warsh continued to emphasize that future policy decisions will depend on incoming economic data rather than providing specific guidance. Earlier this year, many investors expected the Fed to cut rates further, but expectations have shifted, with markets now anticipating at least one rate hike before the end of the year.

One of the Fed's favorite inflation gauges, the Core PCE price index, showed modest improvement. In June, core inflation rose 3.3% from a year ago, down slightly from an annual rate of 3.4% in May. Progress toward the 2.0% target of the Fed has been challenging, and this desired level has not been seen since early 2021.

Gross Domestic Product (GDP) is the broadest measure of economic activity. During the second quarter of 2026, U.S. GDP grew at an annualized rate of 1.5%, below the consensus forecast and down from 2.1% in the first quarter. Consumer spending and business investment remained solid, with much of the business growth tied to continued investment in artificial intelligence. However, lower government spending and reduced business inventories weighed on overall economic growth.

Bottom Line: Markets continue to balance mixed economic data, persistent inflation, and global uncertainty. While inflation has eased gradually, it's still running above the Fed's target, keeping policymakers cautious. For mortgage rates, expect continued daily volatility as investors react to inflation data, Fed commentary, and geopolitical developments.

Hope everyone has a great weekend and thank you for reading.