🏛️ John's Finance Corner: The Fed, Inflation, and Jobs: A Volatile Week for Markets
Last week was packed with pivotal developments in monetary policy, inflation data, and labor market trends—each with significant implications for mortgage rates and broader economic sentiment.
🧭 Fed Holds Rates Steady—Again
For the fifth consecutive meeting, the Federal Reserve left the Fed Funds Rate unchanged. While this rate governs overnight lending between banks and doesn’t directly set mortgage rates, it does influence the 10-year Treasury yield, which plays a key role in determining mortgage rate movement.
Notably, two Fed Governors dissented, calling for a rate cut—the first time that’s happened since 1993. Their concern? That tariffs could eventually trigger a spike in inflation. While such a spike would likely be a one-time adjustment, the Fed remains cautious, prioritizing stability over preemptive action.
This decision came just two days before a dramatic shift in labor market data, raising questions about whether the Fed’s stance may soon need to change.
📊 Inflation Edges Higher in June
The Personal Consumption Expenditures (PCE) report—widely regarded as the Fed’s preferred inflation gauge—showed prices rose 0.3% in June. That pushed the headline annual rate to 2.6%, slightly above expectations.
- Core PCE (excluding food and energy):
- Rose 0.3% in June
- Annual rate reached 2.8%, just above the 2.7% forecast
These figures reinforce the Fed’s cautious approach, as inflation remains above their 2% target. However, the real curveball came from the labor market.
📉 Labor Market Stumbles: Job Growth Revised Sharply Lower
July’s Bureau of Labor Statistics (BLS) report showed just 73,000 jobs added, far below the 110,000 expected. Most gains came from healthcare and social assistance, while government employment declined by 10,000.
But the real shock came from downward revisions to previous months:
- May: Revised from 144,000 to 19,000 jobs
- June: Revised from 147,000 to 14,000 jobs
- Total downward revision: 258,000 jobs
The combination of weak current data and massive revisions sparked a rally in bond yields and mortgage rates, as markets reassessed the strength of the economy and the Fed’s likely path forward.
🗣️ Political Fallout: BLS Leadership Under Fire
In response to repeated downward revisions, President Trump announced the dismissal of the BLS Director. While the move has drawn criticism, it underscores growing frustration with the accuracy and timeliness of labor data.
Better data could lead to more responsive Fed policy—and potentially lower mortgage rates—if decisions were based on real-time, reliable information.
🏡 What It Means for Mortgage Rates
With inflation still elevated and labor market data showing cracks, the Fed’s dual mandate—price stability and full employment—is being tested. If labor weakness persists and inflation cools, we could see a shift toward rate cuts later this year.
For mortgage professionals and homebuyers, staying informed is key. Volatility may continue, but opportunities could emerge as markets adjust to new realities.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
