Mortgage Today: MBS and Stocks Rally After Lower-Than-Expected CPI Data

Core CPI came in below expectations, at 0.2% month-over-month, annualizing to 2.4%. This is seen as a sign that inflation may be peaking, and could take one of the two additional rate hikes off the table. In response, MBS and stocks rallied, with MBS closing up 75 bps and stocks gaining 33 points.

The lower-than-expected CPI data was driven by a decline in used car prices, which fell 0.5% after rising 4.4% for two consecutive months. Shelter prices, which account for the majority of the CPI, rose 7.8% year-over-year, but this increase is expected to start to flatten in the coming months.

The market’s reaction to the CPI data suggests that investors are starting to believe that inflation may be peaking. This could lead the Fed to slow down its pace of rate hikes, which would be positive for both MBS and stocks.