Rates Show Resilient Stability
Although the key economic reports released last week had minimal market impact, mortgage markets reacted negatively to a Supreme Court ruling against tariffs. Consequently, mortgage rates finished the week modestly higher.
Policy Changes Shape Markets
Last Friday, the Supreme Court struck down the tariffs imposed last year. It will take some time to see the results of this decision, but the immediate reaction was unfavorable for mortgage rates. Investors are concerned about a potential reduction in government revenue if the tariffs are removed. If not offset, this could increase the budget deficit, causing the government to issue more bonds. An increase in supply would require yields to rise to persuade investors to purchase additional bonds.
Fed Watches Inflation Closely
Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In December, Core PCE was 3.0% higher than a year ago, up from an annual rate of increase of 2.8% in November and slightly above the consensus forecast. This was the highest reading since April 2024. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.
Growth Moderates After Strong Quarter
Gross Domestic Product (GDP) is the broadest measure of economic activity. Delayed by the government shutdown, the report released last week covers the period from October through December, making this data fairly backward-looking. During the fourth quarter of 2025, U.S. GDP grew at an annualized rate of just 1.4%, down sharply from 4.4% in the third quarter, and far below the consensus forecast. This was the lowest reading since the first quarter of 2025. In particular, consumer spending and exports were significantly weaker than in the prior quarter.
Construction Data Tops Forecasts
Also delayed by the government shutdown, the latest home building data exceeded expectations. In December, overall housing starts rose 6% from November to the highest level in five months. Single-family housing starts climbed to the best level since February. Building permits, a leading indicator of future construction, increased to the highest level since March. Less encouraging, a separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly fell and has remained in negative territory below 50 for twenty-two straight months. According to the NAHB, 65% of builders used sales incentives in February and 36% cut prices.
Mortgage Rates for the week of 02-23-2026