📉John's Finance Corner: Labor Market Weakness vs. Inflation Pressures, What’s Next for Mortgage Rates?
Despite last week’s stronger-than-expected Bureau of Labor Statistics (BLS) jobs report, deeper labor market data continues to show signs of deterioration—raising questions about the Federal Reserve’s next move on interest rates.
🧾 Jobless Claims Reveal Underlying Strain
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Initial jobless claims fell by 5,000 to 227,000, likely influenced by the July 4th holiday.
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Continuing claims rose by 10,000 to 1.965 million, a recent high.
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Continuing claims have now exceeded 1.9 million for seven consecutive weeks, and 1.8 million for over a year.
These figures offer a more nuanced view of the labor market than headline job growth. With more Americans staying on unemployment longer, the Fed may need to weigh this data more heavily when considering rate cuts.
📈 Inflation in Focus: CPI and PPI Reports Ahead
This week is critical for mortgage rates, as we await the Consumer Price Index (CPI) and Producer Price Index (PPI) inflation reports.
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Tariffs announced in April initially rattled markets, though May and June inflation data showed little impact.
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However, the Fed remains concerned that tariff-related inflation could still emerge.
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Year-over-year inflation comparisons are expected to show an increase—largely due to replacing last year’s unusually low June CPI figures.
Even without new inflationary pressures, the math alone suggests this week’s CPI report will come in higher.
⚖️ Fed’s Dilemma: Mixed Signals
The Fed’s dual mandate—price stability and maximum employment—requires a delicate balance.
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Labor market weakness, as seen in jobless claims, supports the case for rate cuts.
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Strong BLS job growth, though often questioned for accuracy, complicates that narrative.
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If inflation rises as expected, bond yields could increase, pushing mortgage rates higher and delaying any rate cut until at least September.
🧭 Bottom Line
The Fed is caught between conflicting data: weakening labor market indicators and potentially rising inflation. This week’s CPI and PPI reports could be pivotal. If inflation surprises to the upside, mortgage rates may climb and rate cuts could be postponed.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
