Solid Jobs Report Sends Mortgage Rates Lower | Omaha NE Homebuyer’s Guide

The Federal Reserve is the one that needs a reset now

Can we have a soft landing in the economy? Friday’s job report shows there is a clear pathway to get there. Mortgage rates fell aggressively down to 6.20%, putting us at more than 1% below the highs of 2022.

The bond market saw that wage growth was cooling down, leaving the Federal Reserve with few reasons to keep the rate hike story going much longer.

We ended 2022 on a solid note as 4.5 million jobs were created last year — and we still have more than 10 million job openings and historically low jobless claims. And now, the growth rate of inflation is falling.

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Bond yields fell after the report since wage inflation is cooling down, a key for the Federal Reserve‘s strategy. The Fed will not tolerate a tight labor market, or Americans on the lower end of the wage pool making more money. They believe this is a bad thing and will create too much-entrenched inflation, so the fact that wage growth is cooling off is a positive sign.

If the inflation growth rate and wage growth are slowing down, the Federal Reserve doesn’t need another rate hike. In fact, the Federal Reserve needs its own reset. That is going to be a big theme of mine for 2023 if this trend continues.

However, the bigger story here is there is a pathway for a soft landing for America, and the Fed should be ashamed of itself for believing that a job loss recession is the best way to kill inflation. The inflation growth rate is already falling and the labor market is still solid.

If shelter inflation had a more real-time tracking system, the headline inflation data would already be lower. Thankfully, the Fed has created its own index to account for much of the lagging inflation in the data line. This is a big deal since nearly 43% of CPI inflation is shelter inflation.

This is why Friday’s data is exciting to see and why the bond market sent mortgage rates to 6.20% and yes — we are back on 5-handle mortgage rate watch. It wasn’t that long ago (in October) that people were talking about 8%-10% mortgage rates and a big recession for the United States of America.

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