U.S. Economy Booms, Inflation Surges, Mortgage Rates Spike
The U.S. economy is thriving, with real GDP growth at a robust 3.8% annualized rate in the second quarter of 2025. However, this strength has led to a challenge in controlling inflation, with the core PCE price index at 2.9% year-over-year in August. Meanwhile, mortgage rates have surged, making refinancing more expensive.
The Federal Reserve's recent interest rate cut has not been enough to curb the inflationary pressures. Mortgage rates have seen a significant increase, with the national 30-year fixed refinance rate climbing by 62 basis points in just one week, from an average of 7.03% to 7.65%. This sudden rise is attributed to positive economic impulses from special funds for defense and infrastructure, an expected rise in government debt, and inflation developments.
The 15-year fixed refinance rate and 5-year ARM refinance rate have also increased, with the 15-year fixed rate jumping by 56 basis points. Despite recent dips in Treasury yields, mortgage rates have not fallen as much as they might have due to a wider-than-usual spread between mortgage rates and the 10-year Treasury yield.
The recent mortgage rates increase impacts homeowners' ability to save money by refinancing. Higher monthly payments and reduced savings are expected, as homeowners face more expensive mortgage refinancing options.
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