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How Jobs, Oil, and Inflation Impact Interest Rates

Welcome back to the Mortgage Rundown. We are going to talk about what’s happening with interest rates.

It’s been a very volatile month in the market. We’ve seen weak job numbers, pretty good Gross Domestic Product (GDP), record national debt, and now a war in the Middle East. And let’s not forget about the FOMC (Federal Open Market Committee) meeting as well.

All these forces have been pushing interest rates up and down recently. And the events of the past month have pushed volatility to the highest levels since April of last year.

In terms of the direction of interest rates, on the one hand, we have a very weak jobs market. The February report showed a net loss of 92,000 jobs, with job losses in almost every sector. 

The trendline for the monthly jobs figures for the past three years shows how weak it has become, with the likelihood of job losses to continue and at an accelerated pace.

On the other hand, we are still dealing with elevated inflation. With the recent conflict in the Middle East and with these elevated oil prices, it’s very likely that inflation is not coming down anytime soon.

And we had the Federal Reserve come out and hold short term rates unchanged. That’s given the current level of inflation and the risks that inflation will re-accelerate due to oil prices.

Thankfully for mortgage rates, they’ve held to a pretty narrow range with everything going on. And it does appear the Federal Reserve is looking to lower rates later this year. 

If oil prices can come down somewhat and the jobs market continues to show more weakness, we could see mortgage rates drop from here.

That’s it, everyone, from the capital markets desk this week. Have a great day.