May PCE data shows core prices at their hottest in nearly three years, adding pressure on mortgage rates
The Federal Reserve's preferred price gauge delivered an uncomfortable reading on Thursday, with core personal consumption expenditures (PCE) inflation climbing to its highest level since October 2023 and headline prices posting a three-year peak — data that further dims any near-term prospect of rate relief for mortgage professionals.
The Bureau of Economic Analysis reported that the PCE price index rose 4.1% over the 12 months ending in May 2026, up from 3.8% in April and the highest annual reading since April 2023.
Monthly, the all-items index climbed 0.4%. Excluding food and energy, core PCE advanced 3.4% year-over-year, its fastest pace since October 2023 and up from 3.3% in April, while rising 0.3% for the month.
Both readings matched Dow Jones consensus estimates but offered little comfort to a market already repricing for a prolonged period of elevated rates.
PCE data hardens the case against mortgage rate relief
The data arrives just over a week after Fed Chair Kevin Warsh presided over his first Federal Open Market Committee (FOMC) meeting on June 16–17, where officials voted unanimously to hold the benchmark federal funds rate at 3.5%–3.75% for the fourth straight time in 2026.
Nine of 18 FOMC members project a rate hike before year-end, and the median year-end federal funds rate was revised upward to 3.8%, up from 3.4% in the March projection.
Officials also raised their year-end 2026 PCE forecast to 3.6%, up from 2.7% in March.
CME FedWatch, which predicts upcoming Fed rate moves based on 30-day Fed Funds futures prices, predicts a rate hike in September. It shows a 70% chance of a hold at the next meeting in July, but a 62% chance of a hike in September.
Industry voices warn that mortgage rate cuts remain distant
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA) in Washington, D.C., offered a direct read on the outlook. "Inflation is too high," Fratantoni said.
"MBA continues to anticipate that the Fed's next move will be a rate hike, and that means mortgage rates are unlikely to drop anytime soon."
Odeta Kushi, deputy chief economist at First American Financial Corporation in Washington, D.C., agreed.
"The more likely story for the second half of the year is volatility around a higher-for-longer range, rather than a meaningful decline in mortgage rates," Kushi told MPA.
"If inflation remains sticky and investors continue to demand compensation for inflation risk, mortgage rates may stay elevated."
Mortgage rates have risen from a 2026 low of around 6.09% to approximately 6.48% as of mid-June, according to Bankrate's national survey of large lenders.
As Bank of America outlined in its revised forecast following the June FOMC meeting, economists at the firm now project three separate 25-basis-point hikes before December, a path that would lift the federal funds rate to 4.25%–4.50% and add further strain to purchase and refinance activity.
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