I said it was going to be a big week for mortgage rates and it didn’t disappoint.
But oddly, mortgage rates shot up for a reason unrelated to jobs data.
It was words from new Fed chair Kevin Warsh that caused rates to jump yesterday.
Today, they will likely ease thanks to underlying economic data, which matters more than words.
And that’s perhaps a taste of what’s to come under Warsh. Tough talk but ultimately data leading the way as always.
Weak Jobs Data Gives Mortgage Rates a Break
This week’s slate of economic data has all been released ahead of the July 4th holiday, culminating with the BLS jobs report today.
A day earlier than usual, it was tame and well below forecast, with just 57,000 jobs added during June versus a consensus of 115,000.
Meanwhile, April’s numbers were revised down by 31,000, from +179,000 to +148,000, and the May was revised down by 43,000, from +172,000 to +129,000.
Thanks to these revisions, employment numbers for April and May combined are 74,000 lower than previously reported, per BLS.
In other words, the labor market is still questionable, despite showing continued “resilience” over the past year and change.
Had it come in hotter-than-expected, there would have been even more pressure on bond yields and mortgage rates, which were near their recent highs going into the report.
Instead, the 10-year bond yield has fallen from around 4.50% to a couple ticks below.
Now everyone can breathe a sigh of relief until the next batch of data arrives.
Tough Talk From Warsh But Economic Data Still Calls the Shots?
I got to thinking that the new Fed chair, who was ostensibly hired by President Trump to cut rates, might be taking a tough talk approach knowing the data will be soft.
So the other day he said “prices are too high,” leading many to believe a rate hike was coming.
But then he gets this weak labor report and he can say well, we need to look at things on the whole.
Our dual mandate is price stability and to promote maximum employment, so we’ll stand pat here. We’ve got no other choice.
Put another way, Warsh can talk tough and satisfy the bond hawks while letting the data bail him out as to not upset the man who hired him.
In the end, that means he’s not much different than his predecessor, Jerome Powell, in that he stays grounded and makes decisions based on data.
And of course, he is but one vote and there are 11 other voting members of the Federal Reserve.
Rate Hike Expectations Fall Substantially
The weak jobs report already reduced rate hike expectations pretty significantly, per CME FedWatch.
The odds of a July hike are down to 17.6% today from 28.9% yesterday, while September is also now odds-on staying put as opposed to a hike.
It was 49.8% in favor of a 25-basis point hike yesterday, and now down to 46%, slightly below the 46.2% odds of holding steady.
While the Fed doesn’t set mortgage rates, Fed rate expectations can push mortgage rates higher or lower.
If the expectation is no longer hikes, mortgage rates can ease, especially if stability in the Middle East is maintained and oil prices continue to fall.
Read on: Use my mortgage rate calculator to compare different rates and payments side by side.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 20 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.
