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Strong Employment Numbers, Slight Rise in Inflation

Overview: Over the past week, Friday’s stronger than expected labor market data was the main influence on mortgage rates. Wednesday’s Federal Reserve meeting produced no surprises, and rates ended the week a little higher.


The important monthly Employment Report revealed strength in nearly every area. In November, the economy added an enormous 266,000 jobs, well above the consensus forecast of 185,000. In addition, revisions added 41,000 jobs to the results for prior months. The unemployment rate unexpectedly declined from 3.6% to 3.5%, matching the 50-year low seen in September. Average hourly earnings, an indicator of wage growth, were 3.1% higher than a year ago, which was slightly above the consensus forecast. Since faster economic growth raises the outlook for future inflation, this data was negative for mortgage rates..

The latest reading on core inflation came in right in line with investor expectations. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. Core CPI, which excludes the volatile food and energy components, was 2.3% higher than a year ago, the same annual rate of increase as last month.

As expected, the Fed made no change in the federal funds rate on Wednesday. Its description of the performance of the economy was very similar to its last statement. The meeting reinforced the widely held view that monetary policy is “on hold” and unlikely to change any time soon.

Week Ahead

December 12 — European Central Bank meeting

December 13 — Retail Sales report

December 17 — New Residential Construction report (also known as Housing Starts)

Trading volume in mortgage markets often is very light during the last couple of weeks of December, which can lead to increased volatility.

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