Following Tuesday’s CPI release, markets were already pricing in a 98% probability that rates would remain unchanged at that gathering, while futures markets raised the probability of a rate hike by year-end to approximately 30%, according to CME Group data.
Meanwhile, the Mortgage Bankers Association projects 30-year mortgage rates will stay between 6.1% and 6.3% in 2026, with its economists noting that rates have moved more than 30 basis points higher over the past several weeks as longer-term yields have accounted for the increase in inflation.
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That baseline assumed a more benign inflation trajectory than Wednesday’s data suggests.
Economists have begun revising their expectations for the May CPI report upward, anticipating that wholesale inflation pressures will filter through more quickly to the consumer level, with some expecting the annual rate to climb above 4% in next month’s reading. a threshold not breached since May 2023.