The labor market experienced unexpected gains last month, with nonfarm payrolls rising 199,000, adding to a 150,000 bump in October. Unemployment fell to 2.7%, workforce participation increased, and monthly wage growth saw their biggest boost of the year.
This paints a difficult picture for the Fed moving into its FOMC meeting, scheduled for this week.
The Central Bank prefers a slower hiring pace to help it combat inflation. Its rate hikes have moved the economy closer to its 2% inflation target, down from 9.1% in June 2022 to 3.2% last month.
Investors are hoping for cuts to federal funds rate sooner rather than later but November’s employment gains give the Federal Reserve more reason to hold interest rates at their current 22-year high.
“All in all, expectations of many cuts next year that begin in the first quarter will be pared back,” Derek Tang, an economist with LH Meyer/Monetary Policy Analytics, told Bloomberg in response to the numbers. “Fed policymakers will seize on this to call for patience and a longer hold.”
Fed Chairman Jerome Powell recently pushed against “speculation” about when cuts may come and said it would be “premature to conclude with confidence” that inflation is easing to the point that policy change would be appropriate.
Prior to the employment data release, 55% of Wall Street analysts thought that the Fed would cut rates this coming March. They’ve since pushed that timeline back to May.
Mortgage rates follow Treasury data, not interest rates. But their impact on overall market forces does influence mortgages, so the Fed’s moves are watched closely by industry experts.
The housing market has proven surprisingly resilient to the Fed’s inflation fight. Rising interest rates should theoretically reduce demand and moderate home price growth.
But the Fed’s latest survey of its Federal Reserve Banks, known as the Beige Book, says higher rates have not deterred as many buyers as some would think.
“Despite higher mortgage rates, demand for residential real estate remained steady, although sales were constrained by low inventories,” the Beige Book summary said.
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