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Federal Reserve policymakers on Wednesday lessened their hawkish stance and refrained from raising interest rates, and new jobs figures released Friday showed the unemployment rate rising toward 4%, threatening an economic recession. Mortgage rates are also rising as U.S. Treasury yields have fallen sharply this week, following warning signs.
yield 10 year Treasury billThe barometer for mortgage rates fell nearly 20 basis points on Friday after the latest rates were released. Overview of employment situation The unemployment rate reached 3.9% in October, according to the Bureau of Labor Statistics.
Friday’s low for the 10-year U.S. Treasury yield was 4.48%, 0.5 percentage point lower than the 16-year high of 5% recorded on October 23, with mortgage rates falling even more sharply and This is the highest level since March.
Mortgage interest rates retreat from 8%
According to Mortgage News Daily’s survey of lenders. 30 year fixed rate mortgage It fell 15 basis points to 7.36% on Friday, down 67 basis points from its 2023 high of 8.03% recorded on October 19th.
This week was the fourth straight decline in the Mortgage News Daily Index, with even bigger declines recorded on Wednesday (19 basis points) and Thursday (18 basis points), which saw rates drop from 8% to nearly 7%.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients that unemployment is rising because the labor force is expanding faster than employers are creating new jobs. Ta.
Unemployment rate is on the rise
The unemployment rate was 3.9%, and the number of unemployed people was 6.5 million, both of which remained largely unchanged from September to October. But each of those indicators has increased by 0.5 percentage points, or 849,000 jobs, since their recent lows in April, according to the Bureau of Labor Statistics.
Looking at long-term trends, Shepherdson said the unemployment rate has been “gradually increasing and is on track to surpass the 4.0% level soon.” “This represents a 0.5 point increase from the cycle low. If it continues for three months, therm rulefor every 0.5 point increase in the unemployment rate, the NBER [National Bureau of Economic Research] He later declared that the economy was in recession at the time. ”
Economists at Pantheon believe there is a “good chance” the Sarm rule will not apply in the latest cycle, as the rise in unemployment is being driven by rapid labor force growth rather than a decline in employment. .
“But if unemployment rises for whatever reason, there will be more pressure on the Fed to hold off on further tightening,” Shepherdson said. “More importantly, it would depress the Fed’s expectations for future wage growth and, by extension, inflation.”
Shepherdson said policymakers will focus on the November jobs report and the two CPI reports released before then, but that the latest jobs report could lead to the Fed raising interest rates at its Dec. 13 meeting. He said the chances of doing so would decrease.
“We don’t expect any rate hikes. The next move is likely to be an easing next spring,” he concluded.
futures market tracked by CME FedWatch Tools Indicates that investors agree with the view. On Thursday, futures markets predicted a 19.8% chance the Fed would raise rates on Dec. 13. On Friday, futures markets were pricing in a 99.5% chance that the Fed (which last raised rates in July) would refrain from raising rates next month.
Futures markets expect interest rates to fall in the spring.
More importantly for spring homebuyers, futures markets on Friday predicted a 64% chance the Fed would cut interest rates by 25 to 50 basis points by May 1, up from 43% on Thursday. is.
Doug Duncan, Fannie Mae’s chief economist, said wage growth continues to slow from its 2022 peak and inflationary pressures in the economy are waning.
“Overall, today’s report shows a healthy but slowing labor market, and we believe this is consistent with continued strong inflationary pressures, especially given the slowdown in employment growth,” Duncan said in a statement. It’s not a book.”
Lower mortgage interest rates
The 30-year fixed rate conforming mortgage rate averaged 7.58% on Thursday, according to daily rate lock data tracked by financial institutions. Optimal Blue Mortgage Market Index.
This is down from the 2023 peak of 7.83% recorded on Oct. 25, but this is the highest rate Optimal Blue has recorded for a conforming loan dating back to 2017.freddie mac records dating back to 1970 It shows that mortgage rates last week reached levels not seen since November 2000.
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Email Matt Carter