Mortgage rates will move slightly higher today on the back of a strong April employment report that makes the previously expected June Fed rate cut very unlikely, but a deterioration in the labor market is expected in coming months if trade policy doesn’t change.
Employers added 177,000 jobs in April—more than expected by economists—with the unemployment rate remaining unchanged at 4.2%. It is much too early to see the employment effects of the new tariffs. The Bureau of Labor Statistics collected this data the week of April 6th, the same week President Trump instituted a 90-day pause on all reciprocal tariffs, other than those on China. Employers are unlikely to make major decisions until the details of any trade agreements with specific countries, especially China, are clear. But with the average tariff rate currently hovering in the low 20’s, up from 2.5% in January, the unemployment rate will increase in coming months if tariff rates stay where they are.
Though the data is all backward looking, the economy is currently too strong to justify Fed rate cuts, given the inflation risk. The -0.3% read on first quarter GDP earlier this week created some alarming headlines, but it was driven by tariff front running. Real final sales to private domestic purchasers, a more reliable read on underlying economic growth, was 3.0%, up from 2.9% in the fourth quarter. From the Fed’s perspective, the size and timing of the employment, economic growth, and inflation impacts of the new tariffs is currently unknown, not to mention the duration of the tariffs themselves. As such, the path of least resistance is to stay the course, keeping rates where they are. Bond markets had been pricing in a June rate cut from the Fed with a 60% probability before today’s data and have since pulled that back to a 45% probability. With the June 18th meeting only seven weeks away, it simply doesn’t feel like there’s enough time for the economic data to convince the Fed to make a cut.
Mortgage rates will tick up slightly today as the odds of a June rate cut declines. For the foreseeable future, until the uncertainty around tariff policy and associated economic impact resolves, mortgage rates are likely to hover in the high 6’s, close to 7%.
