Mortgage Rates Fall After Powell Admits Fear Of Labor Market Softening

Today was a significant day for Jerome Powell. In today’s speech at the Economic Symposium in Jackson Hole, Wyoming, Powell prioritized labor over inflation. Both of these factors have been moving in a manner that the Federal Reserve finds concerning. However, on this important day, Powell wanted to emphasize the importance of the labor market.

For the longest time, the Fed has been discounting the labor data, saying that there was no reason to cut rates anywhere to neutral policy, as the labor market wasn’t posing a threat to their dual mandate. However, after the last jobs report and those terrible negative revisions, even Fed Chairman Jerome Powell couldn’t ignore it anymore. The 10-year yield fell after the headline and mortgage rates most likely will fall just a tad today as well.

Citing the “significant uncertainty” over trade and immigration polices, Powell said this about the labor market:

“The July employment report released earlier this month showed that payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024. This slowdown is much larger than assessed just a month ago, as the earlier figures for May and June were revised down substantially. But it does not appear that the slowdown in job growth has opened up a large margin of slack in the labor market—an outcome we want to avoid,” Powell said.

“The unemployment rate, while edging up in July, stands at a historically low level of 4.2 percent and has been broadly stable over the past year. Other indicators of labor market conditions are also little changed or have softened only modestly, including quits, layoffs, the ratio of vacancies to unemployment, and nominal wage growth. Labor supply has softened in line with demand, sharply lowering the ‘breakeven’ rate of job creation needed to hold the unemployment rate constant. Indeed, labor force growth has slowed considerably this year with the sharp falloff in immigration, and the labor force participation rate has edged down in recent months.

“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
In the past two days on the HousingWire Daily podcast, I have highlighted that what is happening in the labor market isn’t just population growth and immigration growth slowing down. The three-month job average is running at 35K per month, manufacturing jobs are being lost and so are residential construction jobs. These types of labor data are running into the Fed mandate because the Fed keeps saying they’re modestly restrictive.

Currently, the 10-year yield has fallen nearly 7 basis points from its recent highs because the Federal Reserve is prioritizing labor concerns over inflation. This is good for mortgage rates, which are near year-to-date lows today. This situation could change if employment data shows stronger growth.

What do I mean by “stronger growth”? If job creation returns to a rate of around 70,000 jobs per month, the Fed may shift its focus back to inflation, as some members have indicated that job growth between 50,000 and 75,000 is now considered the replacement rate due to slowing population growth.

With this in mind, we should keep a close watch on upcoming job reports. For today, labor issues have taken precedence over inflation, but the question is whether this trend will continue.