Strong Job Gains

Overview: Mortgage markets were extremely volatile again over the past week, as investors continue to evaluate the rapidly changing tariff policies. Wednesday's announcement of a 90-day tariff pause led to a stock market rebound, but considering the many variables involved (see below), the net impact on mortgage markets is hard to quantify. The latest labor market data was stronger than expected. Mortgage rates ended the week higher, near the levels seen prior to the announcement of the new tariff policies.

---

Investors are concerned that higher tariffs will reduce global economic growth, which would lessen future inflationary pressures, a positive for mortgage markets. However, there are a number of potential consequences of the new tariff policies which would be negative. Most directly, tariffs increase prices, which raises current inflation levels. In addition, investors are worried that other countries will hold fewer U.S. Treasury securities in retaliation, and lower demand would cause yields to rise. Finally, some investment funds might be forced to sell bonds to raise money to cover margin calls due to recent losses on stocks. The announcement late Wednesday that tariffs will be cut to 10% for most countries other than China for 90 days reduces the anticipated magnitude of these effects on mortgage markets.

Friday’s key monthly Employment Report revealed that the economy gained 228,000 jobs in March, well above the consensus forecast of 140,000. Strength was seen in the health care, retail, and transportation sectors. The unemployment rate unexpectedly increased from 4.1% to 4.2%. Average hourly earnings, an indicator of wage growth, were 3.8% higher than a year ago, down from an annual rate of 4% last month. While there has been little impact so far, the big question is how much the uncertainty about the economic outlook caused by the new tariff policies will affect the labor market in coming months.

Another significant economic report released this week by the Institute for Supply Management (ISM) fell short of expectations. The ISM Services Index dropped to 50.8, well below the consensus forecast of 53. Still, readings above 50 indicate an expansion in the sector. Since services represent roughly 75% of U.S. economic activity, investors keep a close eye on this report.

In a speech on Friday, Federal Reserve Chair Jerome Powell said that the Fed faces a "highly uncertain outlook" because of the new tariff policies, which are expected to raise inflation and lower economic growth. Powell added that officials will need to wait and see the effects of tariffs to decide the appropriate path for future monetary policy. Investors currently anticipate that the next federal funds rate cut will take place in June.

---

Job Gains (thousands)

---

Week Ahead

April 10

Consumer Price Index (CPI)

April 11

Producer Price Index (PPI)

April 16

Retail Sales report