Rates back up on rising oil prices

Happy Friday from Local Mortgage!

Energy prices remained the focal point of the bond markets this week. As the US/Iran peace deal showed signs a breaking down, oil prices and mortgage rates both rose. We will end the week back to 6.375% for our best 30-year fixed Conventional scenario.

Rising oil prices imply higher inflation. Higher inflation leads to higher rates, all else being equal. With the U.S./Iran peace deal being on increasingly shaky ground risking the ability for oil to flow through the Strait of Hormuz freely, investors sold on the negative headlines.

The first Fed meeting led by new Chair Warsh took place on June 17, and as usual the detailed minutes were released three weeks later. The minutes highlighted a broad range of opinions among policymakers regarding the inflation outlook. Ongoing uncertainty surrounding oil prices and tariff policy continues to make forecasting more challenging, leaving Fed officials nearly evenly split on whether the next move in the federal funds rate is more likely to be a cut or a hike. As a result, future Fed monetary policy decisions will remain highly dependent on incoming economic data, providing investors with limited forward guidance.

Looking ahead, attention will remain fixed on the conflict in the Middle East and the proposed deal to ease tensions. Investors also will monitor comments from Fed officials about future monetary policy. For economic reports, the Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Tuesday. The Producer Price Index (PPI), another monthly inflation indicator, will come out on Wednesday. Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy.

Hope everyone has a great weekend and thanks for reading.