T
he Federal Reserve's decision to cut short-term interest rates is still on the table, but it doesn't guarantee relief from elevated mortgage rates. The recent inflation data shows that while overall inflation held steady at 2.7% in July, core inflation rose 0.3%, pushing the annual rate to 3.1%. This uptick may not be enough to deter a September rate cut, as some economists believe it will still happen.

    The weak jobs report earlier this month and the recent inflation data suggest that the Fed will likely cut rates by a quarter of a percentage point in September. However, even if the Fed takes action, mortgage rates might not budge due to various factors influencing them. In 2024, for example, the Fed cut rates three times between September and December, but after two of those cuts, mortgage rates increased.

    The impact of tariffs on the economy is becoming more apparent, with some tariff-sensitive areas experiencing price declines. However, other items like airline fares and used cars and trucks saw significant increases in July. The Federal Reserve will get updated labor and inflation reports next month, which may provide a clearer picture of how tariffs are affecting the economy.

    The stock market reacted positively to the inflation report, with the Dow Jones rising over 1% by mid-day. However, mortgage rates remained unchanged at 6.58%, according to Mortgage News Daily. Despite this, some economists believe that if inflation runs hotter, the path for mortgage rates will become cloudier, keeping borrowing costs higher for longer.