Mortgage rates were already in the vicinity of the highest levels in 14 years. With large day-to-day swings being extremely common these days, we were only ever one bad day away from making it back to those highs. Today was one of those days! The culprit was at least well known and well understood, both before and after it had its impact on rates. This morning brought the scheduled release of August’s Consumer Price Index (CPI), a key inflation report that has proven to have more power than any other inflation metric when it comes to creating volatility in rates. In other words, we already knew that rates would be headed higher if today’s inflation data came out higher than expected, and that’s exactly what happened. In fact, the actual number beat forecasts by much more than the normal gap between reality and forecasts. It’s common to see a deviation of 0.1-0.2%, but today’s was 0.3%. Bonds dislike inflation for a variety of reasons. There are broad, practical reasons involving the impact inflation has on bondholders’ returns, but there are also timely, tactical reasons. The latter is a reference to next week’s Fed announcement. The Fed’s job is to fight inflation and one of the ways it does that is to hike its policy rate. The Fed Funds Rate isn’t the same as a mortgage rate, but higher Fed Funds Rate expectations tend to push mortgage rates higher. Bottom line: markets now expect the Fed to discuss an even bigger rate hike next week and the bond market is pricing in that possibility today.