The U.S. Bureau of Economic Analysis has released their Personal Consumption Expenditures report for the month of September. This is the Federal Reserve’s favorite measure of inflation and the report showed that headline inflation increased 0.3% in September and stayed at 6.2%, year over year. Both readings were in line with estimates.

As for the core rate, which strips out food and energy prices, PCE increased from 4.9% to 5.1%. This was lower than expectations of 5.3%. The Fed’s goal is to get core PCE below or around 2%. They can withstand it being a bit higher, but ultimately this is the Fed’s target for core PCE inflation.

Wednesday, the Fed will likely hike the Fed Funds Rate by 75bp, but as always, their comments on future hikes will be important for the markets along with Jerome Powell’s press conference.

As we have been discussing, when the Fed hikes the Fed Funds Rate this is done in an attempt to curb inflation by slowing down the economy. Mortgage bonds, which is where mortgage rates come from, usually view this as deflationary and mortgage rates usually do improve. It is important to keep an eye on inflation because as inflation cools and gets closer to the Fed’s target, we should see mortgage rates improve.

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A Family

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