The debt ceiling is behind us so rates must be dropping like a rock right? Not so fast! We were getting a little bit of a rally before we got the jobs report today. May’s job report came in at plus 339,000 which was a lot better than the 190,000 that was estimated. That’s great, right? Well not in the crazy mixed-up world of mortgage rates. A rule of thumb with mortgage rates is that the better the economy is doing the worse rates will be. The reason is that the Fed will see this as a sign that the economy is doing well and that maybe more rate hikes are needed to quell inflation. Although there is the strange part, even with adding that many new jobs the unemployment rate rose to 3.7% from 3.5%. I won’t even begin to try to make sense of that. What this means is that we probably haven’t seen the last rate hike. They probably won’t hike at their next meeting in June but July is likely when that happens.

One important thing to note that went under the radar with the debt ceiling deal is that student loan payments will start again in August. That’s important as I think that will help reduce inflation, it’s hard to see how it won’t. Student loan debt is the second highest debt that Americans have. That’s a lot of money that will be sucked out of the economy.

What does this all mean? Right now the data is not our friend, inflation hasn’t fallen fast enough and the economy has remained resilient so far even with all these rate increases. In order for mortgage rates to fall inflation needs to cool faster and that won’t happen if unemployment is near historical lows. This could all change once May’s inflation data comes out on the 13th, if that shows inflation falling fast then we are in business. Until then I don’t see rates making any meaningful progress lower, unfortunately.

Recap:

-Higher than expected jobs report negates most of the gains from the debt ceiling resolution

-Next Fed meeting is on June 14th, likely be no increase in rates

-Inflation data comes out on the 13th, that is the next key data point

-Student loan repayments end in August, which could help with inflation

Thanks