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Mortgage rates soared and stocks fell on Friday after a surprisingly strong jobs report convinced investors that the Federal Reserve would not cut interest rates again until June.
The Bureau of Labor Statistics reports that employers added 256,000 jobs in December, up from 212,000 in November, and will bring payrolls up by 165,000 in the final month of the year. It far exceeded my expectations.
Major stock indexes such as the Dow Jones Industrial Average, S&P 500 and Nasdaq recovered some of their initial losses, but were still down 1% in afternoon trading Friday.
Interest rates on 30-year fixed-rate conforming mortgages purchased by Fannie Mae and Freddie Mac rose 9 basis points to 7.24% Friday, according to lender data compiled by Mortgage News Daily.
The yield on the 10-year U.S. Treasury, a benchmark for mortgage rates, rose by as much as 10 basis points to 4.79%.
Mortgage interest rates resume rising
Mortgage rates have risen nearly 1 percentage point since hitting a 2024 low of 6.03% on Sept. 17, according to Rate Lock data tracked by Optimal Blue.
30-year fixed-rate mortgage rates are nearing their 2024 high of 7.27%, set on April 25, but forecasters say the post-pandemic high was set in October 2023. We do not expect it to return to 7.83%.
samuel’s tomb
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note to clients that monthly fluctuations tend to be “noisy” and likely to be revised downwards, making it difficult for investors to follow the latest employment report. He pointed out that he may be overreacting.
“Labor market data is very volatile and has very wide confidence intervals, so at least six months of data is best to determine trends,” Toombs said.
Sam Carter
But for now, the continued strength of the economy “continues to put upward pressure on mortgage rates and impact housing affordability as home prices soar,” said Sam, Freddie Mac’s chief economist.・Mr. Cater said on Thursday. “Lack of entry-level supply also remains an issue, especially for those looking to become first-time homeowners.”
Salary growth is on the decline
Toombs noted that employment growth in the second half of 2024 averaged 165,000 jobs, down from 207,000 in the first half of this year.
Investors in the bond market now expect Fed policymakers to keep short-term interest rates unchanged at their next meetings in January, March, and May.
nigel green
“The latest jobs report is a wake-up call for those betting on short-term interest rate cuts,” DeVere Group CEO Nigel Green said in a statement. “It remains clear that controlling inflation and maintaining economic stability remains the Fed’s priority. Investors will need to readjust their strategies accordingly.”
Futures markets tracked by the CME FedWatch tool on Friday showed that Fed policymakers remained steadfast at their June 18 meeting, setting the current target range for the federal funds rate at 4.25-4. ．We predicted a 42% chance of keeping the rate unchanged at 5%. This is up from 27% on Thursday and 12% on December 10th.
Toombs said forecasters at Pantheon Macroeconomics still expect the Fed to cut short-term interest rates by 25 basis points in March, June, September and December, which would push the benchmark rate by 1. He said it would be reduced by a percentage point.
“With short-term bank lending rates for small businesses at 9% and nominal sales growth slowing, small businesses will likely only maintain staffing levels over the next few months,” Toombs said. “Meanwhile, we expect many large companies to pause hiring until the new administration clarifies its economic policy intentions on immigration, customs, procurement, and regulation.”
Investors in the bond market, which funds most mortgages, are cautious about the possibility of policies promised by the incoming Trump administration to reignite inflation.
The National Federation of Independent Business’ December employment report showed that a seasonally adjusted net 19% of small business owners plan to create new jobs in the next three months, which is more than 2023. This is the highest level since May, Toomes said.
But Toombs said the NFIB study’s executive committee leans Republican, and that the large increase in hiring intentions in late 2016 “quickly dissipated with no appreciable impact on pay.”
Unemployment rate is flat
The number of unemployed people decreased by 235,000 to 6.89 million, and the unemployment rate fell to 4.1% in December.
But Toombs said the increase in unemployment over the past 12 months was statistically significant by only 571,000 people, reflecting laid-off workers who were unable to quickly find new jobs. .
“There are fewer layoffs, but employment is even weaker and the unemployment rate is creeping up,” Toombs said.
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