The economy grew more slowly than expected in the first three months of the year, but prices rose more quickly than expected. This is a mixed report. On balance, I think it points toward higher mortgage rates, but I wouldn't bet my next paycheck on that prediction.
In the first quarter, gross domestic product grew at an annual rate of 2.7 percent, according to the Commerce Department. Investors and economists had expected the report to reflect faster growth of around 3 percent.
That slower-than-expected growth typically would imply a decrease in interest rates. But something unusual happened: Prices rose a bit faster than expected, at an annual rate of 1.1 percent instead of the expected 1 percent.
With inflation higher than expected, it seems that interest rates would rise. But there are a couple of caveats. First, a seasonally adjusted annual rate of 1.1 percent is very low inflation. Second, there's not a lot of difference between the expected 1 percent and the 1.1 percent that we got.
Mortgage bond prices are high and rates are low, and I think mortgage markets are searching for reasons to take rates higher. A dash of inflation would do that. And if lenders conclude that a sluggish economy makes lending riskier, that could lead to higher rates, too.