Author: Eric BernsteinPublished:
Last week was relatively quiet, with inflation data coming in at or below expectations. That changed over the weekend when President Trump increased pressure on Denmark and much of Europe in a renewed push to bring Greenland under U.S. control.
Treasuries and mortgage rates are ticking higher and stocks are pulling back this morning as markets digest the latest tariff threats. We saw this pattern repeatedly in 2025: new trade rhetoric creates short-term volatility that the markets don't like, but rates tend to settle back down once the headlines fade.
The average rate on a 30-year fixed rate conventional loan stayed mostly flat at 6.04%. See what rates we're offering by signing up for our Friday rate texts.
Our LendFriend Learning Center has now has over 200 articles to help homebuyers buy with confidence. Check out our top articles of the week at the bottom of this email.
Trump's Renewed Push To Acquire Greenland Rattles Markets
Late last week, President Trump threatened new tariffs on 8 European countries unless Greenland is sold to the United States. The proposal would start tariffs at 10% in February and raise them to 25% by June, targeting key U.S. allies including Denmark, Germany, France, and the U.K., quickly reviving fears of a renewed transatlantic trade conflict.
Treasury Secretary Scott Bessent moved to calm markets, pushing back on speculation that Europe could retaliate by dumping U.S. Treasuries. He called that idea a “false narrative,” arguing it would be economically irrational, and reiterated that U.S. commitment to NATO remains intact despite the rhetoric.
Why it matters for Treasuries and mortgage rates... Tariff threats raise inflation risk and uncertainty, even if nothing ends up happening. Higher expected inflation pressures Treasury yields upward as investors demand more compensation for the additional risk, and mortgage rates follow the 10-year Treasury. That’s why political trade headlines alone can move mortgage pricing in the short term. If nothing ends up happening or a trade deal is made, markets will stabilize and rates will likely fall back down.
Inflation Data is Shows Prices are Still Stable
Inflation data last week came in largely as expected or slightly better. December CPI showed core inflation running at 2.6% year over year, a bit below forecasts, while wholesale inflation (PPI) also surprised to the downside with producer prices rising less than anticipated. At the same time, consumer demand remained solid, with retail sales beating expectations (0.6% increase vs 0.4% expected) signaling that the economy is slowing in an orderly way rather than stalling .
It's good news for many who thought that we'd see rapid price increases from the tariffs implemented last year. If inflation stays under control and the labor market continues to deteriorate, we'll see more rate cuts in 2026 as long as renewed tariff threats and geopolitical tension do not continue to dominate headlines.
What to expect this week? PCE, Davos and a possible New Fed Chair Announcement
This week’s calendar picks up with the PCE inflation report in focus. As the Fed’s preferred inflation gauge, PCE will be closely watched for confirmation that inflation continues to cool. A softer reading would be supportive for rates, while any upside surprise could briefly pressure them higher.
Markets are also paying attention to Fed leadership, after Treasury Secretary Scott Bessent said a decision on the next Fed chair could come in the next week ahead of the Fed meeting on 1/28 (likely to dull any impact of that meeting). Leadership changes matter because they influence how the Fed interprets inflation and growth data. Rick Rieder, BlackRock’s chief investment officer for global fixed income, has emerged as a candidate gaining momentum, adding another layer of uncertainty for rates markets.
Finally, global leaders and policymakers are gathering at Davos this week, which opens the door for unexpected headlines. Messaging around trade, geopolitics, and economic cooperation has the potential to either calm markets or increase tension, even if the underlying economic data remains steady.
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