This week’s economic news: despite ending the week with mortgage rates mostly unchanged, recent developments in trade policy and inflation data created turbulence across financial markets. From the easing of trade tensions with China to surprising inflation numbers, these shifts offer insight into where the economy—and mortgage rates—could be heading next.
A Pause in Tariff Escalation
Earlier this month, the United States and China imposed a new wave of tariffs on each other’s goods, reigniting trade tensions between the two global economic powerhouses. After these economic news, markets responded swiftly on Monday when officials announced a temporary 90-day pause on most tariffs. This truce signaled a cooling of hostilities and led investors to raise their expectations for global economic growth.
While this was a welcome development for the stock market, it had the opposite effect on mortgage markets. Anticipated economic growth typically raises inflation expectations, which in turn leads to higher bond yields—and by extension, mortgage rates. As a result, the news initially put upward pressure on mortgage rates.
Inflation Comes in Cooler Than Expected
Fortunately for mortgage markets, inflation data released later in the week helped offset the negative impact of the tariff news. The Consumer Price Index (CPI), one of the most closely followed indicators of inflation, showed slower-than-expected growth in April. The Core CPI, which excludes volatile food and energy prices, rose 2.8% year-over-year—slightly below consensus expectations.
Though the 2.8% annual increase remains well above the Federal Reserve’s target of 2.0%, it is the lowest since March 2021. Core CPI peaked at 6.6% in September 2022 and was still at 3.9% in January 2024. The steady decline provides some reassurance that inflationary pressures are gradually easing.
Shelter costs—specifically housing—remain a major component of inflation and continue to be sticky. Meanwhile, used vehicle prices declined for the second consecutive month, and new vehicle prices held flat. These factors contributed to the lower overall inflation readings.
Producer Price Index Offers More Good News
The Producer Price Index (PPI), which measures wholesale inflation and is often viewed as a precursor to consumer price trends, also surprised to the downside. Core PPI fell 0.4% from March to April, a significant deviation from the expected 0.3% increase. On a year-over-year basis, it rose by 3.1%, down from 3.3% the previous month.
Although PPI garners less attention than CPI—mainly because it tracks a smaller portion of the economy—it’s still closely watched by analysts. The drop in wholesale inflation, alongside the soft CPI numbers, gave bond markets some relief and helped pull mortgage rates back from early-week highs.
Economic News: Tariffs and Consumer Spending
One side effect of rising tariffs is a sense of urgency among consumers to make purchases before prices go up. This behavior was evident in March retail sales, which surged 1.7% from the previous month—the largest increase since January 2023. The rush to buy goods ahead of tariff-related price hikes likely fueled that spike.
In April, retail activity returned to more stable levels, with just a 0.1% increase, aligning with forecasts. Home improvement and electronics retailers performed well, perhaps reflecting ongoing investment in housing and technology. On the flip side, spending declined in sporting goods and department stores, suggesting a slight tightening of discretionary spending.
What to Watch Next
The next economic news to watch out for: market participants will closely monitor any updates related to U.S.-China tariff negotiations. Higher tariffs, if reintroduced or expanded, could place upward pressure on prices, undermining recent inflation improvements.
Economic data will be lighter in the coming week, but it includes some key housing market reports. Existing Home Sales numbers will be released on Thursday, followed by New Home Sales on Friday. Both will offer a glimpse into how the residential market is faring in the current rate environment. Also on Thursday, the Global Services Purchasing Managers’ Index (PMI) will shed light on broader economic activity in the service sector.
This past week showcased the complex push and pull between trade policy, inflation, and mortgage rates. While a temporary truce in the tariff war boosted growth expectations—and mortgage rates along with them—soft inflation data brought welcome relief to bond markets. The interplay of these forces left mortgage rates relatively stable in the end, but it’s clear that both tariffs and inflation remain potent variables in the outlook for housing and lending.
As the market absorbs future data, from trade decisions to housing numbers, expect continued volatility. For now, mortgage rates appear to be treading water—waiting for the next ripple in an ever-changing economic tide.
