First comes inflation. Then comes rates - timing is the question

The release of June's Consumer Price Index (CPI) provided one of the most influential reports on any given month as far as mortgage rates are concerned. Inflation cooled to a monthly pace closely in-line with the Fed's target range and resulted in a brief respite to interest rates. So why are rates going back up and nearing a 23-year high when historically mortgage rates and inflation move in a similar direction?

Rates and inflation do not move in lockstep. It takes time for mortgage rates to begin following inflation and that lagtime has varied historically. Secondary market investors who purchase mortgage bonds are trying to guage how the Fed will interpret the latest numbers on employment.

According to the most recent Fed minutes, while the labor market has showed signs of loosening, it still remains tight -- particuarly as job openings still outnumber available workers by a nearly 2-to-1 margin (~1.6 job openings for every jobseeker). This is important because the Fed's decision to raise rates has been partly based on the state of the labor market. If tomorrow's employment report shows further signs of loosening, then we could see mortgage rates improve sooner. The assumption is the Fed would view a looser employment situation as a positive thing, namely their aggresive rate hikes have worked and they can consider reducing rates or at least remain neutral.

If you haven't added the 10-year Treasury ticker to your iPhone stocks app, then you should go ahead and do so. Mortgage rates and the 10-year Treasury tend to move in a similar direction day-to-day, albeit at different yields/rates. This will give you a good sense of how "the market" is performing if you are curious about the short-term direction of rates.