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Mortgage rates gained room to come down again Friday after a key inflation metric improved in August, giving investors more confidence that the Federal Reserve will continue cutting rates aggresively in November.
The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, showed the prices of goods and services rose by 2.2 percent in August from a year ago. That’s down from 2.5 percent in July, and shows inflation continues to inch closer to the Fed’s 2 percent goal.
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Yields on 10-year Treasurys, a barometer for mortgage rates, dropped by as much as 5 basis points Friday. Bond market investors are growing more convinced that Fed policymakers will follow up last week’s dramatic 50 basis-point reduction in short-term interest rates with an identical move on Nov. 7. A basis point is one-hundredth of a percentage point.
While Fed policymakers have made it clear they intend to continue bringing short-term rates down this year and next, uncertainty over the pace and timing of those cuts has tugged mortgage rates up and down.
Many economists had expected the Fed to start its rate cutting campaign last week with a more restrained 25 basis-point cut in the federal funds rate. But “the tepid inflation figures” released Friday “underscore why the Fed was so confident” to start out with a bolder move, KPMG U.S. Chief Economist Diane Swonk said in a bulletin.
The CME FedWatch tool, which tracks futures markets to calculate the probability of future Fed moves, on Friday put the odds of another 50 basis-point cut in November at 57 percent, up from…