Week Of: December 8th, 2025

The last couple of weeks were relatively quiet for mortgage markets. With the end of the shutdown, the flow of key government economic data has gradually resumed, including the delayed PCE inflation report for September. There were no significant surprises in the data, however, and mortgage rates ended slightly higher.

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In September, Core PCE was 2.8% higher than a year ago, matching expectations, down from an annual rate of increase of 2.9% in the prior month. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.

Two significant economic reports released this week by the Institute of Supply Management revealed mixed results. The ISM national services sector index rose slightly to 52.6, close to expectations, and the highest level since February. Meanwhile, the national manufacturing sector index fell to just 48.2, the lowest level since July. Readings above 50 indicate an expansion in the sectors and below 50 a contraction. This was the ninth straight month that the manufacturing index was under 50, while the services index has generally held above that level. Although manufacturing makes up just roughly 10% of the economy, it is an important indicator of economic activity. Higher tariffs on foreign goods may provide a lift to domestic manufacturing companies over time and help close the performance gap with services.

The latest survey on consumer sentiment published by the University of Michigan revealed that consumers remain concerned about the impact of higher tariffs and the economic outlook. Still, the index rose from the lowest level since June 2022 last month to 53.3, above the consensus forecast of 52.0. The component of the report on consumer inflation expectations showed that the five-year average outlook fell to the lowest level of the year, which was good news for mortgage markets.

Looking ahead, the next Fed meeting will take place on Wednesday, and most investors anticipate that the Fed will reduce the federal funds rate by 25 basis points. There is a wide range of expectations for the outlook for monetary policy next year, however, so investors will be paying very close attention to guidance from officials. With the end of the shutdown, the schedule for the release of delayed government economic reports continues to be gradually updated. The JOLTS report on job openings is scheduled for Tuesday. The Producer Price Index (PPI), a monthly inflation indicator, is scheduled for Thursday.

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