Overall employment numbers fell below what the market anticipated, with 73,000 July job additions compared to estimates for 104,000, making it more likely that a mortgage rate drop is nigh and that industry hiring may escalate.
Bond market reaction to the Bureau of Labor Statistics data could lower long-term mortgage rates near term, according to First American Senior Economist Sam Williamson’s commentary.
“Markets often move ahead of policy, and rising expectations of a cut could begin to lower long-term yields. That may lead to a modest decline in mortgage rates even before the Fed acts,” he said.
Treasury bond prices jumped higher immediately after the employment report’s release, putting downward pressure on rate-indicative yields, but trading in mortgage bonds more directly tied to the industry’s rates was mixed, according to FHN Financial strategist Walt Schmidt’s report.
In the jobs report, total nonbank mortgage payroll estimates, which have one-month lag compared to other employment data, matched revised numbers at 267,000. Loan broker numbers inched down
How the job numbers could impact Fed policy
“We expect that this labor market softening will prompt the Fed to cut rates twice this year and once in 2026,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Some of the other commentary released in response to the jobs data predicted that a Fed cut could come immediately
Traders had been pricing in 40% odds of a Fed rate cut. But that number has risen to 63%, according to Nigel Green, CEO of deVere Group, a financial consulting firm.
“This report is a major red flag. The headline miss is bad enough. But the real story is the scale of the revisions,” he said, referring to a change from 147,000 to just 14,000 in June and a drop from 144,000 to 19,000 in May.
“This likely changes the Fed’s calculus,” Green said. “The data the central bank had been relying on has now been invalidated.”
However, the Fed still could think twice about a rate cut in September if the inflation reading is high, according to the latest commentary by Melissa Cohn, regional vice president at William Raveis Mortgage.
“With tariffs rolling out August 1, there will also likely not be enough data on the impact of tariffs on inflation for the Fed to move in September,” she added.
Fed policy has an indirect role relative to
“While the Fed has a direct impact on the fed funds rate and what are considered short term rates, changing the fed funds rate can stimulate long term rates like mortgages over time,” he said.
However, he warned there isn’t always a correlation between the two.
“Disconnects can occur where market sentiment and overall economic conditions can weigh on the responsiveness of long-term rates when the Fed adjusts, ultimately leading to higher mortgage rates in the short run in some cases,” Echols said.