Americans have been waiting on the Federal Reserve to cut or hike its rate all year. As a result, all eyes have been on inflation throughout 2026.
Inflation and the Fed impact various aspects of our financial lives — including mortgage rates. Considering the Freddie Mac 30-year fixed mortgage rate hit an annual high of 6.69% on Aug. 6, potential homebuyers would be thrilled if inflation pushed mortgage rates down.
The U.S. Bureau of Labor Statistics releases the July Consumer Price Index (CPI) on Wednesday, Aug. 12. The CPI is a key measure of inflation — and Wednesday’s is a big one.
“With unemployment still at 4.1%, the Fed can point to a labor market that has not deteriorated enough to force its hand,” Jeff DerGurahian, chief investment officer and head economist at loanDepot, said in a statement shared with TheStreet.
“That makes this week’s Consumer Price Index (CPI) inflation report the next major temperature check for rates,” DerGurahian continued.
Why is the July CPI so important for mortgage rates?
As a general rule of thumb, mortgage rates increase when inflation is aggressive and decrease when inflation cools.
The June CPI report was important for mortgage rates, just like any other. But the July data holds more weight.
President Trump announced that the ceasefire between the U.S. and Iran was officially over on July 8. This news impacted oil prices, public sentiment, and inflation.
The BLS published the June CPI on July 14, by which point everyone already knew that renewed tensions would affect inflation. But since the data was only for June — when it looked like there could be peace between the two countries — the report wasn’t as relevant. The numbers didn’t reflect the current state of inflation.
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So, this month’s inflation data will weigh more heavily on the Fed’s rate decision at its next meeting in September.
“Even though there will still be one more jobs report and one more CPI report before the meeting, Wednesday’s data could decisively shift the odds,” Chen Zhao, head of economics research, wrote for Redfin.
The Fed will look at core inflation, which excludes the volatile categories of food and energy.
What’s driving the numbers heading into Wednesday
To get a solid idea of how the July inflation report could affect mortgage rates, I’ll provide essential context for what has happened over the last month. All of this sets the stage for how home loan rates will react to the July CPI.
Let’s start with the June CPI’s core inflation.
In June, the month-over-month core inflation was unchanged. Annual core inflation increased by 2.6%. This was down from 2.9% in May and 2.8% in April.
Many economists expect July inflation to bounce back.
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“Economists say prices at the pump fell on balance in June, which should help limit the overall rise in inflation,” Morningstar wrote. “But forecasters predict the July report will show upward pressure on prices continuing at a faster pace than Federal Reserve officials would like.”
Many had expected the FOMC to hike the federal funds rate at its September meeting. But after the surprisingly weak jobs report on Aug 7., people started speculating that the Fed could hold its rate instead.
The Fed typically holds or cuts its rate when the jobs market is weak. This keeps borrowing costs more affordable, which helps stimulate the economy.
As of Monday, Aug. 10, the CME FedWatch tool was roughly split on whether the central bank would raise rates or leave them unchanged.
The CME FedWatch tool’s prediction will change one way or the other after Wednesday’s inflation report. And this sentiment alone could alter mortgage rates.
Possible mortgage rate outcomes after CPI report
Mortgage rates’ response to the July CPI will depend on whether inflation data meets economists’ expectations.
Dow Jones analysts expect annual core inflation to increase by 2.5%, CNBC reported. Home loan rates should tick down if core inflation is cooler than expected and rise if it is higher.
And if core inflation comes in as expected? We should see very little movement in rates.
“For now, the market is in a holding pattern,” DerGurahian said. “A better-than-expected inflation report could help push a Fed hike further down the road, but a hotter core reading, potentially influenced by the unresolved conflict between the U.S. and Iran, would bring those expectations right back into focus.”
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