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1 day ago
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Today, the ADP jobs report was released, marking the second of four jobs reports we’ll get during this jobs week. The numbers came in significantly weaker than anticipated, leading to lower mortgage rates. Does this imply that the big jobs report on Friday will come in as a miss, too? As someone who believes that for mortgage rates to go lower, we need weaker labor data, the setup for jobs Friday just got more interesting.
Shortly after the report came out, President Trump and FHFA Director Bill Pulte took to social media to express their frustration that Fed Chair Jerome Powell hasn’t cut interest rates more. Trump posted: “‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!”
Pulte joined the chorus and wrote: “Jerome Powell must lower rates, and now. Enough is enough.”
Last week President Trump shared my article about Pulte and Powell on his social media on the same day that he met with Powell, asking him to cut rates. If you read the article, you can see some of the labor risks in keeping rates high tied to this economic expansion.
I have consistently emphasized since 2022 that the Federal Reserve‘s focus is more on the labor market than on inflation when considering lowering rates toward a more neutral policy. The Fed has not shied away from stating that they have a moderately restrictive policy. At the last Fed meeting, Powell said he believed they had waited too long in 2024 to cut rates by 1% as the labor market was softening.
Will this jobs week push him and the Fed to start cutting rates soon, so they don’t make the same mistake this year? Let’s take a look at today’s report.
ADP Report
Today’s ADP report was estimated by some to come in near 110,000 and instead it came in at 37,000, which was a big enough miss to get bond yields to fall after the report was released. The ADP report doesn’t carry the same weight as the BLS jobs Friday report, but the miss was big. Here was the statement from the ADP’s economist:
“After a strong start to the year, hiring is losing momentum,” said Dr. Nela Richardson, chief economist, ADP. “Pay growth, however, was little changed in May, holding at robust levels for both job-stayers and job-changers.”
From my perspective, if the economy is in a phase of expansion, a 10-year yield within the range of 4.35% to 4.70% aligns well with current Federal Reserve policy. This range represents the upper end of my 2025 forecast for the 10-year yield, and I’d like to note that we are currently at 4.35%.
Mortgage rates have been in the upper range of 6.75% to 7.10% recently; currently, they stand at 6.87%. What would be ideal for the housing market is to get the 10-year yield to around 3.80%, which means mortgage rates between 6%-6.25%. However, the current Fed policy is strict, making it challenging to achieve that level without weaker economic data. This has been the frustration for Trump and Pulte — that Fed policy is too restrictive for housing.
Today, the ISM PMI service data also came in, with new orders near cycle lows, which added to the mix of softer data for the day and sent yields a bit lower as well.
Conclusion
At this point it’s important to consider the interplay between the president and the Fed. I believe if rates don’t fall soon, the president will initiate a shadow Fed president policy, meaning he will let the marketplace know who will replace Powell and that person will go on a media blitz telling bond traders rates will be coming down soon. In this recent podcast, I discussed why I believe the president promoted my article and I outlined the potential White House strategies for managing the Fed in the current environment.
On Thursday we will get jobless claims data and we have the big jobs report on Friday. With how the bond market reacted to the ADP report today, Friday’s report will be even more important for mortgage rates.
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