John’s Finance Corner: Fed Cuts Rates Again as Labor Weakness Builds
Last week, the Federal Reserve announced its third rate cut of the year, while additional data continued to point toward a softening labor market. All of this sets the stage for what is shaping up to be a very important week for Treasury bonds and mortgage rates.
The Fed lowered the Federal Funds Rate by a quarter percentage point, marking its third cut in 2025. As a reminder, the Fed Funds Rate determines what banks charge one another for overnight lending it does not directly set mortgage rates. While the move was widely expected, Fed Chairman Jerome Powell cautioned that there is “no risk-free path” forward. Policymakers remain focused on balancing a weakening labor market while inflation continues to sit above the Fed’s long-term target.
Looking ahead, the Fed’s median forecast for 2026 includes at least one additional quarter-point cut, though those expectations could shift as new economic data is released and voting members change. Powell’s term as Chairman is also set to end next spring, and President Trump is expected to nominate a successor viewed as more rate-cut friendly. Bond markets tend to react quickly to policy expectations, which helps explain why mortgage rates have actually risen following previous Fed cuts investors price in future risks well before they materialize.
On the labor side, delayed data from September and October showed job openings rising modestly, increasing from 7.23 million in August to 7.66 million in September and 7.67 million in October. However, those headline figures may be overstated, as many remote positions are posted across multiple states. Even with the increase, job openings remain well below the 2022 peak of nearly 12 million.
More telling are the broader labor indicators. The hiring rate fell to 3.2%, tied for the lowest level since 2011 outside of the pandemic. Layoffs climbed to their highest level since January 2023, and the quit rate dropped to 1.8%, the lowest since 2014 when excluding pandemic distortions. Together, these metrics signal weaker demand for workers and less confidence among employees to change jobs.
This week brings a heavy slate of data that could significantly influence bond yields and mortgage rates, including:
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ADP employment data
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Updated unemployment figures
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Delayed BLS jobs reports
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Retail sales data
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Weekly jobless claims
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The latest Consumer Price Index (CPI) inflation report
Volatility should be expected, but if the incoming data continues to reflect economic and labor market softness, there is a strong possibility that bond yields and mortgage rates could improve as the week unfolds.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
