It’s nice to see a 5 again on the rate sheet, it’s been a while!

The Fed meets this week (September 17th), and everyone’s waiting to see if we finally get a rate cut this year. Markets are betting on a 0.25% cut, with most expecting two or three by year-end.

A big catalyst for a cut has been the weakness in the job market. August’s jobs report came in soft, with just 22,000 jobs added and unemployment ticking up to 4.3%. On top of that, the government revised the past year of job growth down by 911,000 jobs(!), showing the labor market hasn’t been as strong as it looked in real time. If we start seeing negative job numbers then we may see rates drop like a rock.

Another thing to watch is how mortgage rates react if the Fed cuts. When the Fed cut rates in September 2024, mortgage rates dipped briefly… and then jumped right back up again as you can see below.

Will history repeat itself again? Who knows — it’s always difficult to predict these things. I am a little cautious because we’re following a similar trajectory from last year, with rates steadily coming down over the last couple of months. When you see rates move in one direction for that long, there’s usually a correction at some point.

 The big difference is that clearly there is more weakness in the labor market. Last August saw an increase of 142,000 jobs, compared with the 22,000 this August. All eyes will be on Powell on Wednesday as we get an idea on how many rate cuts we will see the rest of the year

 Recap:

 Fed meets Sept 17th: Markets expect a 0.25% cut, with two to three total by year-end expected.

Jobs weakening: August added just 22,000 jobs, unemployment rose to 4.3%, and last year’s totals were revised down by 911,000.

Rates may zig before they zag: Inflation is still sticky, and after last year’s Fed cut mortgage rates actually jumped so that’s something to look out for.