Current Inflation Rate Will Give Fed Pause on Raising Rates; Mortgage Applications Rise Despite High Rates

WASHINGTON—Consumer prices were up 2.4% in May from a year earlier, the Labor Department reported yesterday, slightly higher than April’s gain of 2.3%. That year-over-year number was in line with the 2.4% increase expected by economists surveyed by The Wall Street Journal.

The index for shelter rose 0.3% in May and was the primary factor in the all-items monthly increase. The food index increased 0.3% as both of its major components, the index for food at home and the index for food away from home also rose 0.3% in May. In contrast, the energy index declined 1.0% in May as the gasoline index fell over the month.

Based on the latest inflation report and fears that inflation may go higher due to the tariffs being imposed by the Trump administration, a hoped-for rate cut by the Federal Reserve is at best some months off.

In response to the CPI report, National Association of Realtors Chief Economist Lawrence Yun said, “Gasoline prices plunged 12% from a year ago, and airfares are cheaper. The prices of new and used cars are barely moving. However, overall consumer price inflation rose to 2.4% due to high shelter costs. The significant shelter component, comprising more than one-third of the measure's weight, increased by 3.9%. If shelter inflation were to ease to 2% or even 3%, overall inflation would already be at a comfort point for the Federal Reserve.”

He continued, “The Fed will remain on pause until inflation is fully contained at or below 2%. It has cited uncertainty regarding the tariff impact to monitor how prices play out in the coming months. Wall Street bettors are pointing to September as the first of several potential rate cuts. Meanwhile, car repair costs are soaring, indicating a labor shortage and the need to attract more young adults to the trade fields.”

On a positive note, the Mortgage Bankers Association reported that applications increased despite rates that approached 7%,

Mortgage applications increased 12.5% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 6, 2025.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) increased to 6.93% from 6.92%, with points decreasing to 0.64 from 0.66 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) increased to 6.93% from 6.92%, with points increasing to 0.63 from 0.60 (including the origination fee) for 80% LTV loans.

“Coming out of the Memorial Day holiday, mortgage applications increased to the highest level in over a month, driven by growth in both purchase and refinance applications. Treasury rates saw some movement during the week, which resulted in additional opportunities for borrowers,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The rate for 15-year fixed-rate loans and FHA loans saw declines last week, while the 30-year fixed rate was largely unchanged. Purchase applications were 20% ahead of last year’s pace, continuing to show strength compared to a year ago. Despite ongoing uncertainty surrounding the economy, homebuyers seem to be taking advantage of loosening housing inventory in certain markets.”