Inflation is no longer considered transitory and is now being seen as a major issue by the Federal Reserve. The latest consumer price index (CPI) showed an increase of 6.8% annually—the fastest acceleration for that measure of inflation since 1982. The core-CPI, which excludes the more volatile items like food and energy, rose by 4.9% year-over-year. That's the fastest rate since 1991. 

The Labor Department's report will likely have a heavy influence on the upcoming Federal Open Market Committee (FOMC) meeting. Federal Reserve Chairman Jerome Powell recently retired his use of the word 'transitory' when describing inflation and instead acquiesced that what America is experiencing is no longer temporary. 

Current economic factors continue to indicate that the Fed's hand will be forced sooner rather than later. Investors predict the Fed will double its bond tapering at the beginning of 2022, reducing purchases by $30 billion instead of the current rate of $15 billion. If so, that means the Fed would end its tapering by Spring of 2022 which would open the door for the FOMC to raise the overnight lending rate. Since March 2020 when the COVID-19 pandemic hit the economy in full force, the FOMC has kept the overnight lending rate at or near 0%. This is the rate at which banks borrow money. That reduction in rate is generally passed on to consumers in the form of things like lower credit card interest rates. 

An accelerated process of tapering bond purchases and raising overnight lending rates will also have an impact on mortgage interest rates. The Fed's purchases of bonds and mortgage-backed securities have helped keep interest rates low because originators have been given a consistent buyer for the loans. When that demand goes away, originators need to make the loans they sell more attractive and that means higher interest rates. 

Mortgage rates stay flat for now

Mortgage rates plateaued over the last week with the latest 30-year fixed-rate mortgage average from Freddie Mac coming in at 3.10%. This time last year, it was sitting around 2.71%. These low rates are a large part of what pushed the intense demand for housing that has greatly affected existing inventory and pushed home prices extremely high. Lower rates were doing a lot to offset the rising cost of homes but now that rates are rising those savings are dissipating.

The 30-year fixed-rate mortgage has become ubiquitous in the housing industry because of its stability. However, it's important to talk to a Movement Mortgage loan officer to make sure you know all of your options. For example, 15-year fixed-rate mortgages often come with lower interest rates but higher principal payments since the loan is paid off in a shorter period of time. 

Adjustable-rate mortgages also come with much lower interest rates, and can often have a lower principal payment, but can be tricky once you reach the end of the fixed term. Freddie Mac's latest report shows that 15-year fixed-rate mortgages averaged out to be 2.38%. The 5/1 ARM rate was 2.45%. Keep in mind, these rates are all averages gathered from most originators across the country and may not reflect what you will be quoted as your rate.