Today, the Federal Reserve decided to keep interest rates steady, highlighting a shift in focus toward the labor market rather than just inflation—something that’s been evident since 2022.
Economic Context
Historically, drops in mortgage rates, like those seen from late 2022 to early 2023 and again in mid-2024, have typically been linked to economic uncertainties and labor market woes.
The Fed only started cutting rates after recognizing a softening labor market late in 2024, suggesting they’re reluctant to lower rates until there’s clear evidence of trouble ahead.
In today’s meeting, Chairman Powell pointed out the strikingly low hiring rates and warned that rising layoffs could quickly boost the unemployment rate.
The Fed has set a target unemployment rate of 4.3%, signaling to the markets that a downturn in labor could lead to lower 10-year yields.
This approach is aimed at providing clarity and managing expectations.
Labor Market Outlook
Looking forward to 2024, the decline in manufacturing jobs poses a threat to the growth of private sector payrolls, especially if interest rates take a downturn, potentially jeopardizing jobs in residential construction.
The current level of housing permits resembles a recession-like environment, indicating that the housing sector could be at risk if mortgage rates keep climbing.
Overall, today’s Fed meeting didn’t deliver any shocks, but it underlined important trends in the housing market.
Powell mentioned that while the housing market has stabilized since their last talks, he’s worried that high interest rates could slow down activity.
After the Fed’s announcement, the 10-year yield dipped slightly from a rise, now resting at 4.56%.
Looking Ahead
As we head into a week packed with job data releases, it’s clear that the labor market is taking center stage over inflation in today’s economy.
Tomorrow, we’ll get updates on jobless claims, followed by comprehensive labor data next week.
Source: Housingwire