Portland Mortgage Market Update — October 16, 2026

Inflation is back! Well, I guess it never really went away, but it did dominate the headlines this week. We got both the Consumer Price Index and the Producer Price Index and they both revealed what every wallet is feeling- prices are continuing to go up. Unsurprisingly, gasoline was the driver of it all, with prices spiking 9.1% in September alone and 34.2% higher than this time last year. CBS News noted that CPI "has now registered around 65 months—thats more than five years-- of consecutive annual readings above 2%". Read another way, and understanding the Fed's entire reason for existence is to 1)Keep inflation in check and 2) stabilize employment, it sounds like the Fed has failed, continuously, for five and a half years.

Despite the higher inflation, rates...improved? Yes, somehow rates turned a bit of a corner this week against all logic. There were a couple of things happening that were good for rates. For one, the 10 yr Treasury Yield tested and retreated from a crucial level of 5.35% in the face of this terrible inflation reading. If it broke above that level and stayed there, the next level of resistance was basically the moon and rates would have spiked as a result. The fact that it held the line and retreated from that 5.35 level gave investors confidence. Also, Treasuries have had competition from AI companies issuing bonds to finance their buildouts, and concern about growing AI debt without any discernible profits caused bond traders to look back to the safety of US Treasuries.

Beyond that, Fed Chair Warsh spoke at the IMF conference in Bangkok, saying he believes AI will eventually be a boon to the economy, but acknowledging it is hitting "the demand side of the economy before its going to hit the supply side of the economy". Basically, he is saying that the near-term cost of building it out is what is propping up the demand side of the economy (labor to build, chips to manufacture and purchase, etc). In a perfect world, when it hits the supply side of the economy it will allow for wealth-generating productivity boons and advanced solutions to technology issues. Prior to taking office, Warsh argued that AI productivity could curb inflation by capping wage pressures that drive up inflation. So we have two paths going forward- if AI is successful it will help bring inflation (an interest rates) down. If it fails, we enter a massive recession causing rates to drop to try and keep the economy alive. The only question is how long until we realize which path we are on.