 Fed Gets GreenLight for Interest Rate Cuts as Unemployment Rate Jumps to 4-Year High |
Source |
American Shipper |
Post Date |
09/08/2025 |
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The Federal Reserve is now seen as likely to cut interest rates multipletimes before the of the year, following another weak jobs report thatshowed unemployment jumping to a four-year high.
The U.S. economy added just 22,000 jobs in August, lessthan economists had expected, the Bureau of Labor Statistics reported Friday.
The unemployment rate rose to 4.3%, up slightly from 4.2%in July but hitting the highest level seen since October 2021, when the economywas still recovering from pandemic-driven layoffs.
Although the new jobs report was troubling news for theeconomy, for prospective homebuyers with secure jobs it likely means furthereasing in mortgage rates in thedays to come.
Mortgage rates hinge primarily on the yields of 10-year Treasury notes,which plunged Friday to their lowest level since early April, whenPresident Donald Trumps Liberation Day tariff announcement sparkedpanic in financial markets.
It signals further easing for mortgage rates is likely inthe coming days, after the average 30-year mortgage rate fell to an 11-monthlow of 6.5% this week.
"For prospective home buyers and sellers, the federalfunds rate is probably not the most important thing to watch," saysBrightMLS Chief Economist Lisa Sturtevant. "There is a looseand time-lagged relationship between the federal funds rate and mortgage rates.Instead, it will be important to watch how the bond market responds to today?jobs report and upcoming economic data releases."
One wild card in the equation is August inflation data dueout next week. Headline inflation has been stuck around 2.7% through thesummer, and if it continues to creep up, it could complicate matters for Fedpolicymakers.
Although a quarter-point cut to the Feds policy rate hadbeen viewed as likely at the next Federal Open Market Committee meeting onSept. 17, the weakness of the August jobs report raised speculation of a largerhalf-point cut.
Bond markets also signaled higher confidence that the Fedwill cut rates three times before the of the year, estimating theprobability of three cuts at 67% following the jobs report, according to theCME Groups FedWatch tool
Further downward revisions raise concerns
The August jobs report was hotly anticipated followinga stunning downward revision inthe July report released one month ago.
The July report revised employment growth for May and Junedownward by a massive combined 258,000 jobs, revealing that spring hiring wasmuch weaker than initially reported by the federal government.
Such a large revision signals that the economy is shiftingrapidly, and that the assumptions built into initial estimates are faulty.Trump responded to the July report by firing the commissioner of the Bureau ofLabor Statistics, whom he accused of manipulating the jobs numbers "forpolitical purposes."
But the August report continued to offer troublingrevisions, with June hiring revised downward by 27,000, from +14,000 to-13,000, meaning the employed population actually shrank that month for thefirst time since 2020.
Job growth in June was initially estimated at +147,000,a strong number that gave the Fed ample reason to hold rates steady at itslate-July meeting.
July hiring was revised up by 6,000, from +73,000 to+79,000. With these revisions, employment in June and July combined was 21,000lower than previously reported.
Mixed signals for housing market
While the cooling labor market will help nudge mortgagerates downward, it will also raise uncertainty for homebuyers who may fearlosing their jobs.
Its unclear what the net effect might be on a housingmarket that is in a deep stall, with home sales this year on track to setanother 30-year record low.
"Home sales activity and the housing market generallyremain stuck as a formerly red-hot sellers?housing market has balanced,"says Realtor.com?Chief Economist Danielle Hale. "Homebuyersgrapple with a lack of affordability, sellers cont with more competition,and builders deal with lower buyer demand."
Hale notes that in addition to falling mortgage rates andsoftening home prices, ongoing wage growth is the third key to restoringhomebuyer affordability.
Although the new jobs report will put downward pressure onmortgage rates, concerns about inflation and rising government debt could pushthose rates back up, even if the Fed follows through with multiple rate cuts byyears .
"Participants in the housing market should not try totime rates. They certainly should not expect the Fed? decision itself tomaterially impact mortgage rates in the short-term," warns Sturtevant.
"People who want to buy and are financially ready todo so should take advantage of more inventory and more opportunities fornegotiating," she adds. "Sellers in most markets are starting toreset expectations on pricing and are prepared to negotiate in a way they havenot over the past few years.?
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