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April inflation remained elevated, with the Consumer Price Index (CPI) rising 0.6% for the month and 3.8% year over year. Much of the increase was driven by higher gas and fuel prices tied to the Iran conflict, along with rising food costs. Together, food and energy accounted for more than half of the monthly increase in inflation.

Core inflation, which excludes food and energy, came in hotter than expected, rising 0.4% in April and 2.8% annually.

Wholesale prices showed similar pressure. The Producer Price Index (PPI) jumped 1.4% in April – nearly triple expectations – and was up 6% from a year ago, again driven largely by energy and gasoline costs. Core PPI rose 1% for the month and 5.2% annually.

What’s the bottom line? The Fed is weighing two competing trends: inflation that remains above its target and signs that the labor market may be slowing. Persistent inflation supports keeping rates higher for longer, while weaker employment data could strengthen the case for rate cuts later this year.

The Fed has kept its benchmark interest rate unchanged so far this year after cutting rates three times late last year. While the Fed doesn’t directly set mortgage rates, its decisions heavily influence overall borrowing costs.

Meanwhile, the Senate confirmed Kevin Warsh as the next Chair of the Federal Reserve as Jerome Powell’s term came to an end. Markets will be closely watching Warsh’s first Fed meeting on June 16-17, along with any commentary beforehand, for clues on the direction of future rate decisions.

After declining in March, existing home sales edged up 0.2% in April, according to the National Association of REALTORS® (NAR). Housing inventory also increased, rising 5.8% from March to 1.47 million homes, up 1.4% from a year ago.

What’s the bottom line? While inventory levels are improving, the housing market remains undersupplied compared to historical norms. Still, NAR Chief Economist Lawrence Yun noted that buyers are gaining a bit more breathing room, with bidding wars easing compared to recent years. He also pointed to improving affordability as a factor helping support home sales, despite mixed economic signals and weaker consumer confidence.

Retail sales rose 0.5% in April, matching economists’ expectations. Excluding more volatile categories like autos, gas, building materials, and restaurants, sales also increased 0.5%, a stronger-than-expected result. This “control group” measure is closely watched because it feeds directly into GDP calculations.

That said, higher fuel costs can still ripple through the economy by increasing transportation and operating expenses, which may be contributing to higher prices across other categories.

On the labor side, new unemployment claims remain relatively low at about 211,000. However, that number may not fully capture labor market strain, as some displaced workers are turning to freelance or gig work instead of filing for benefits.

Meanwhile, continuing unemployment claims stayed elevated at 1.78 million, suggesting many job seekers are taking longer to find new employment.

Housing news takes center stage this week, beginning Monday with the latest builder confidence report from the National Association of Home Builders. On Tuesday, we’ll get April’s Pending Home Sales report, followed by new home construction data on Thursday.

Investors will also be watching Wednesday’s release of the Federal Reserve’s latest meeting minutes, which can sometimes influence market movement. In addition, the newest Jobless Claims numbers will be released Thursday, offering another snapshot of the labor market.

Mortgage Bonds ended last week sharply lower, breaking below several key support levels. They closed the week in a new trading range, with support near 99.59 and resistance at the 99.99 Fibonacci level.

Meanwhile, the 10-year Treasury yield moved above resistance at the 4.58% Fibonacci ceiling. With that key level now broken, the next area of resistance comes in around 4.65%.