Mortgage rates plummet to new 2025 low on anemic jobs report

Mortgage rates fell dramatically to a new 2025 low on Friday after an anemic jobs report convinced investors the economy is decelerating and the Federal Reserve is likely to cut rates several times this year and next to head off a recession.

Employers added just 22,000 jobs to U.S. payrolls in August — 53,000 fewer than forecasters had expected — and the ranks of the unemployed swelled to 7.38 million, bringing the unemployment rate to 4.3 percent, the Bureau of Labor Statistics reported^[1].

Mike Fratantoni

The report brought yields on 10-year Treasury notes^[2], a barometer for mortgage rates, down by 10 basis points, as bond market investors repositioned for the Fed to start slashing short-term rates again on Sept. 17. A basis point is one hundredth of a percentage point.

Mortgage Bankers Association Chief Economist Mike Fratantoni said the slowdown in the job market “should be more than enough” for Fed policymakers to cut at their September meeting, “as this is not a picture of an economy at ‘maximum employment,’ and the greater risk now appears to be that the job market will slip further in the months ahead.”

Mortgage rates hit new 2025 low

At 6.46 percent on Thursday, rates on 30-year fixed-rate conforming mortgages had already broken through the previous 2025 low of 6.48 percent registered on April 4, according to loan lock data tracked by Optimal Blue^[3].

Friday’s dramatic drop in 10-year Treasury yields is also pulling mortgage rates down, with investors who fund most home loans willing to accept lower returns on mortgage-backed securities (MBS).

Lender data tracked by Mortgage News Daily^[4] showed rates on 30-year fixed-rate mortgages falling by 16 basis points on Friday, to levels not seen since October, 2024.

Outlook for rate cuts

Futures markets tracked by the CME FedWatch tool^[5] show the question is not if the Fed will cut rates this month, but by how much.

Investors on Friday were pricing in a 100 percent chance that the Fed will cut the federal funds rate by at least 25 basis points (1/4 of a percentage point) on Sept. 17, up from 86 percent on Aug. 29.

In the eyes of investors, the odds of a 50 basis-point September Fed rate cut — 1/2 a percentage point — have gone from zero on Thursday to 12 percent on Friday.

Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said the weak jobs report makes the firm’s forecasters more confident in their prediction that the Fed will cut rates by 3/4 of a percentage point by the end of the year, and by another 3/4 of a percentage point next year.

Samuel Tombs

“We continue to think, however, that ongoing concerns about potential inflation stickiness caused by the tariffs will steer the [Fed] towards easing in 25 basis-point steps, rather than by 50 basis points this month,” Tombs said in a note to clients.

Fratantoni agrees that the pace of additional cuts “will certainly be tempered by the ongoing risk of a pickup in tariff-induced inflation.”

Futures markets tracked by the CME FedWatch tool on Friday put the odds of three Fed rate cuts totaling at least 75 basis points by the end of the year at 78 percent, up from 46 percent on Thursday.

US payrolls shrank in June

On top of the surprisingly slow payroll growth in August, a previous estimate for June payroll growth was revised down by 27,000. The latest estimate is that rather than growing by 14,000 in June, U.S. nonfarm payroll employment actually shrank by 13,000.

Mark Zandi

“It’s a jobs recession,” Moody’s Analytics Chief Economist Mark Zandi posted^[6] on the social media platform X. “The goods side of the economy, including manufacturing, mining, and construction, is losing a significant number of jobs, as is the federal government. Only healthcare and hospitality are adding to payrolls.”

Manufacturing payrolls shrank by 12,000 in August, and are down by 78,000 from a year ago — which Tombs attributed to uncertainty about tariffs.

“It’s not a full-blown recession, as GDP, incomes, and profits are still slowly growing,” Zandi noted. “But for how much longer, if the economy continues losing jobs?

Appearing on Fox Business, Labor Secretary Lori Chavez-DeRemer said^[7] that August payroll growth “underperformed just a bit, but it’s still in the positive.”

Lori Chavez-DeRemer

Chavez-DeRemer claimed that the Trump administration’s tariffs, trade deals and tax cuts have helped create 500,000 jobs this year, and that Federal Reserve Chair Jerome Powell “should be embarrassed by this report.”

“We’re doing everything we can for this workforce, and now this is one more thing that the Fed can do,” Chavez-DeRemer said. “Jerome Powell hasn’t done his job, and that’s why the president has been so vocal about this. We need those interest rates down.”

Mortgage rates rebounded from 2025 lows in April over fears that tariffs announced by President Trump would revive inflation. But rates have been easing again since late July as the Trump administration postponed some tariffs and announced trade deals with trading partners, and data showed the economy slowing and the labor market softening.

The downward movement in rates gained momentum on Aug. 22, when Powell revealed at an economic summit in Jackson Hole, Wyoming^[8], that Fed policymakers were starting to see unemployment as a bigger risk to the U.S. economy than inflation.

Unemployment rate ticks up

Although the unemployment rate ticked up for the second month in a row in August, the increase over the past six months is not statistically significant, Tombs said.

The “relatively muted increase” in the unemployment rate, despite the sharp slowdown in payroll growth, “probably partly reflects weaker growth in the workforce due to tighter migration policies,” Tombs said.

More notable, Fratantoni said, is the 8.1 percent “U-6” unemployment rate^[9], which includes people who have settled for part-time employment or have given up looking for work in the last 12 months.

“While the pace of layoffs has picked up somewhat, the hiring rate remains quite low,” Fratantoni said. “It is increasingly difficult for those laid off, and for new entrants into the job market, to find a position.”

The ranks of the unemployed have grown by 313,000 from a year ago, to 7,384,000. But another 6.4 million people want a job but are not currently looking for work, up 722,000 from a year ago.

Today’s “rock-bottom hiring rate is discouraging many from even trying to look for a job,” Tombs said. “The unemployment rate would rise quickly if many in this group start looking for work and reclassify themselves as unemployed.”

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Email Matt Carter^[12]