Mortgage Rates To Fall a Bit More Today as Jobless Claims Jump and Inflation Posts Steady Growth
Takeaway: Mortgage rates will ease a little bit more today as a jump in unemployment insurance claims overshadows a CPI inflation report showing an expected increase in inflation, nudging higher the odds of more rate cuts from the Fed in the coming months.
Inflation is growing, especially in tariff-sensitive sectors, but the increase is gradual enough that the Fed will continue to ignore it on the assumption that monetary policy need not respond.
Core prices (excluding the volatile food and energy categories) increased by 3.1% year-over-year in August, up from the low of 2.8% reached in March. On a monthly basis, core prices increased 0.346%, the highest increase since January.
Similar to the last few months, there is evidence that tariffs are showing up in consumer prices. Both apparel and (0.5% month-over-month) and used vehicles (1.0% month-over-month) popped up. Overall, all core goods prices grew 0.3% month-over-month, the highest growth rate this year.
On the services side, the key shelter categories of rent of primary residence and owners’ equivalent rent (OER) were a little firmer than expected with OER ticking up to 0.4% month-over-month. While market rents have ticked up recently, it’s much too soon for that to trickle into the CPI numbers, so this may just be statistical noise.
Yesterday’s headline and core (excluding food and energy) numbers were unexpectedly negative, but the underlying fundamentals were even worse. The components of the Producer Price Index (PPI) that flow through to core PCE (the Fed’s preferred inflation gauge) were much higher than the other components that pushed the topline numbers down. Still, forecasts for core PCE remained unchanged after that data release.
Unemployment insurance data released at the same time reinforces the flood of recent data pointing to a potential labor market recession.
Unemployment insurance claims jumped from 236,000 last week to 263,000 this week, the highest since Oct 23, 2021. Meanwhile, the number of people continuing to stay on unemployment insurance (as opposed to being able to find a job) has been sneakily increasing all year.
Today’s release is piling on the sudden torrent of labor market data suddenly flashing red. Importantly, the change today is that employers may also be increasingly letting people go in addition to just not hiring.
However, we must note that much of this recent data is very likely overstating the weakness of the labor market.
Today’s jobless claims data could be especially noisy as it contains the difficult-to-adjust-for Labor Day holiday last week.
Similarly the August jobs report released last Friday is likely to be revised higher in coming months as the August report has historically been biased downwards to the tune of 60,000 jobs.
Tuesday’s benchmark revision of payroll growth from April 2024 to March 2025 by almost a million jobs is also likely to be much too large as the QCEW data underlying the revision has itself been revising upwards.
The labor market data is also harder to interpret in light of the huge reduction in immigration (reducing labor supply), but it’s difficult to dispute that the Fed should be concerned about the labor market.
Calls for a 50 bps cut next Wednesday and/or more cuts in coming months will grow a little louder, but the Fed will remain cautious and data-driven, sticking to a 25 bps cut at the next meeting and keeping their options on the table.
With bond markets pricing in slightly more than a 25 bps cut next Wednesday as well as two more cuts at the October and December meetings, mortgage rates could rise if the Fed fails to meet the market’s expectations.
Chen Zhao
Chen Zhao is the head of economics research, where she produces research on the housing market for public and internal audiences.
Previously, she was an executive director leading housing finance and financial markets research at the JPMorgan Chase Institute. Prior to joining JPMCI, Chen was an economics consultant at Analysis Group, Inc., where she worked on financial litigation cases and led teams conducting health economics and outcomes research on behalf of pharmaceutical companies.
While in graduate school, Chen was with the Center for Economic Studies and the Social Economic and Housing Statistics Division at the US Census Bureau, where she conducted applied microeconomics research using large scale restricted-access linked survey-administrative data. She started her career at the White House Council of Economic Advisers, where she focused on labor and health economics.
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