Overview: After reaching the lowest levels in over two years, mortgage rates were pushed higher over the past week in the wake of stronger than expected labor market data. The Federal Reserve minutes and comments from Fed Chair Jerome Powell caused some volatility, but had little lasting impact.
While the economy added just 72,000 jobs in May, it made up for it with an outsized gain of 224,000 jobs in June, which was well above the consensus forecast of 160,000. The unemployment rate unexpectedly increased from 3.6% to 3.7%, but this was mostly due to additional people entering the labor force, which is a sign of strength. Average hourly earnings were 3.1% higher than a year ago, the same annual rate of increase as last month. Since faster economic growth raises the outlook for future inflation, the strong job gains were negative for mortgage rates.
In Wednesday’s testimony before Congress, Fed Chair Powell helped solidify the policy outlook held by most investors for a quarter-point rate cut at the next meeting on July 31. Powell noted several factors that would justify this easing, including slowing U.S. business investment, uncertainties about global growth, trade tensions, and persistently low inflation. The Fed minutes from the June 19 meeting released later in the day also were consistent with investor expectations.
The trade talks between the U.S. and China continued at a meeting during the G20 summit near the end of June. The two sides agreed to a truce during which they will hold off on imposing additional tariffs to allow more time to negotiate a long-term deal.
Looking ahead, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The Retail Sales report will be released on July 16. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. New Residential Construction report (also known as Housing Starts) will come out on July 17. In addition, news about the ongoing trade negotiations with China could influence mortgage rates.