Mortgage rates declined again this week as inflation continues to moderate. The latest Bureau of Labor Statistics CPI report contained no major surprises and a September rate cut from the Fed should be a done deal. Annual price increases measured by the consumer price index have fallen to 2.9% from roughly 9% just two years ago. The markets still expect three quarter-point cuts by year’s end.

As the economy slows, the demand for ‘safe-assets’ increases, putting downward pressure on yields. Both long-term Treasury bonds and short-term Treasury bills are widely considered safe assets. The recent decline in Treasury yields, which mortgage rates tend to follow, reflects investors’ expectations, meaning mortgage rates may already be near their lowest point this year. On the supply side, large Treasury issuance like the $42B in 10-year notes auctioned last week could offset the downward pressure on yields.

Retail sales and housing starts data releases this week will likely cause investors to reassess their growth forecasts. That means more rate volatility ahead.

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