T
he latest jobs report for August, which contained a mix of data, has sparked discussions among real estate economists about a potential interest rate cut by the Federal Reserve on September 18. The Bureau of Labor Statistics reported that the U.S. added 142,000 jobs last month, which was weaker than expected. However, during the same period, the unemployment rate decreased, and wages rose by 3.8% in the past year, surpassing expectations. This increase in wages means consumers have more purchasing power, according to Danielle Hale, Realtor.com's chief economist.
The Federal Reserve seems to recognize the need to start cutting interest rates but has not committed to a specific amount yet. In a speech at the University of Notre Dame on September 6, Federal Reserve Governor Christopher Waller emphasized the importance of initiating the rate-cutting process at their next meeting.
The latest jobs report suggests that the job market is not deteriorating significantly, which might mean a deep cut in interest rates may not be necessary. Sam Williamson, senior economist at First American, believes that if the labor market had weakened more, the Fed might have considered a 50-basis point cut in September. However, given the current situation, a 25-basis point cut seems more appropriate.
Chen Zhao, who leads the economics team at Redfin, pointed out that the futures markets have an equal chance of predicting a 25- or 50-basis point cut for the September 18 meeting. This uncertainty is unusual for the modern Fed.
If the Fed decides to go for a 25-point cut, it might not have a significant impact on the 30-year mortgage rate, which averaged 6.35% this week. According to Williamson, the benefits of these rate cut expectations are already being reflected in the 30-year fixed-rate mortgage. Following the jobs report, Mortgage News Daily reported a decrease in the daily rate to 6.27%.
Zhao also mentioned that the Fed will consider next week's inflation data as a crucial factor in deciding whether and how much to cut rates. This data could be the last piece of the economic puzzle for the board to make a decision.
