Good Morning on this best day of the week Wednesday, from your Hometown Lender,

Rates improved today after consumer inflation readings for May came in showing lower inflation than expected.

Reprice risk on the day is moderate, mortgage bonds are testing technical resistance and we could see bonds drift lower as the day goes on. Rate sheets won’t be quite as good as a week ago when we got unexpectedly better pricing, but should still be better than we’ve seen since. Although we can start off the day cautiously floating, it may be a good window to lock ahead of tomorrow’s PPI report.

The May Consumer Price Index (CPI) report showed a surprisingly mild increase in inflation, with both the headline and core CPI rising just 0.1% from the previous month—lower than any economist had predicted. On a year-over-year basis, core inflation held steady at 2.8% for the third consecutive month, marking the slowest pace since the inflation surge of 2021. The softness in inflation was driven by falling prices in airfares, used cars, and clothing, along with a minimal increase in services prices excluding housing. A drop in energy costs also helped keep overall inflation in check.

Despite expectations, tariff hikes didn’t show up in the numbers, possibly because businesses are temporarily absorbing the costs rather than passing them on to consumers. This unexpectedly tame inflation reinforced markets’ expectations that the Fed will cut rates twice this year, although the first cut is not expected to happen at next week’s meeting.

Stay safe and make today great!