Mortgage Rates to Fall to the Lowest Level in Almost a Year on Today’s Weak Jobs Report

Today’s weak jobs report all but guarantees that the Fed will cut interest rates by 25 basis points at its September 17 meeting, and that’s sending rates down today to their lowest level in almost a year. Since the mortgage market is already pricing in the Fed’s expected cut, mortgage rates are unlikely to fall more after the meeting unless the Fed forecasts more future cuts than markets have priced in.

The labor market appears at risk of a recession, with just 22,000 jobs created in August, negative job creation in June, and the highest unemployment rate since October 2021.

• The three-month moving average of job creation is now below 30,000 per month, with June now clocking in at -13,000, the first negative reading since December 2020. These are the kinds of numbers we start to see right before a potential recession.
• On the other hand, while the unemployment rate is now at the highest level since the end of the pandemic, it only increased from last month due to some unlucky rounding. Also, historically, the subsequent revisions to the August jobs reports are usually positive meaning the initial print is biased negative.
• All in all, considering the weak data earlier this week on job openings and layoffs and the still low unemployment insurance data, employers appear to be pulling back dramatically on hiring, but they are not increasing layoffs. That feels like a labor market that is at risk of a recession, but the wheels haven’t fallen off the car yet. Recession risk would become more certain if in the coming months we see additional negative jobs reports or if the unemployment rate, currently 4.3%, rises to 4.5% or higher.

The Fed will cut interest rates by 25 basis points at the September 17 meeting. This report is weak enough that a few voices might call unsuccessfully for a 50 bps cut instead.

• Christopher Waller and Michelle Bowman, the Fed governors who dissented at the prior meeting in favor of a cut when the committee ultimately voted to hold, might have enough ammunition with this report to argue for a larger than usual cut.
• However, with the unemployment rate ticking up to only 4.3% and August being a historically noisy month for the employment report, the Fed is unlikely to rush. They remember last September when they executed a 50 basis-point cut that in hindsight may have been unnecessary when market pricing was 50/50 between 25 and 50 basis points.

Mortgage rates are falling today–and could drop to their lowest level in almost a year. 

• Prospective homebuyers and refinancers who are holding out for a big drop in mortgage rates after this month’s Fed meeting could be heading for disappointment: with a 25 basis-point cut already priced in, mortgage rates are unlikely to fall further after the September 17 meeting.
• If mortgage rates fall to 6.3% and stay there, this could be the first real opportunity to lock in a rate that low since mortgage rates first surpassed 6.3% in fall of 2022. There have been a couple of dips below that level since then, but they have all been temporary.