U.S. and mortgage jobs rise, so rates will tick up too

Gains in U.S. jobs data and lagging industry employment figures arrived Friday, with the former adding to bond activity that puts upward pressure on mortgage rates.

The economy added 256,000 jobs in December, outpacing a 155,000 consensus estimate as the unemployment rate dropped to 4.1 from the previous month's 4.2%. Industry payrolls rose to 275,500 in November from an upwardly revised 274,500.

The numbers were in line with indications from the Federal Open Market Committee, which in minutes released from its December meeting earlier this week suggested that monetary policymakers could be slow to cut short-term rates this year.

"While the FOMC had indicated that they could slow the pace of rate cuts as we enter 2025, these data make at least a pause in cuts much more likely, which will push mortgage rates higher," said Mike Fratantoni, chief economist at the Mortgage Bankers Association, in an email.

The rate-indicative 10-year Treasury, which had already been trending higher due to global tensions, rose further to a high of 4.78% not seen since late 2023, according to CNBC. 

The release of the Bureau of Labor Statistics' job report came during a turbulent week when fires raged in Los Angeles and the broader array of other recent economic indicators suggested interest rate cuts remain possible.

A recent National Association of Home Builders analysis suggests job openings would need to be below eight million for a period of time before federal officials would lower rates.

Job openings were at 8.1 million in the latest report released earlier this week. While this was above the eight million line National Association of Home Builder analysis suggests they'd need to cross to get federal officials to lower rates, it points to a long-term decline.

"This is notably smaller than the 8.93 million estimate reported a year ago and reflects a softened aggregate labor market," Robert Dietz, chief economist at NAHB, noted in a report.

However, others think the recent strength in the job market makes the chances there'll be Fed rate cuts remote.

"The robust labor market and persistently high inflation provide compelling reasons for the Fed to maintain its current policy stance," said Nigel deVere, CEO of financial consultancy deVere Group.

Long-term, labor statistics still paint a mixed picture of the job market's strength, but the latest numbers have generally been stronger, according to Fratantoni.

"In recent months, there had been increases in the share of workers who were unemployed for longer spells. Although other data continue to report that hiring rates remain quite low, in December, the number of long-term unemployed individuals decreased," he said.

Some economists still think rates could fall in 2025, but the latest jobs report points to this occurring later in the year rather than sooner.

"Overall, mortgage rates are expected to drift modestly lower to the mid-to-low six percent range by year-end," First American Senior Economist Sam Williamson said in a report Friday.

Williamson anticipates the Fed will pause at its January meeting.

"A more gradual pace of rate cuts will allow the Fed to assess the impact of the 100-basis-point cuts made in late 2024 and gain clarity on the incoming administration's fiscal policies and 119th Congress' legislative priorities," he said.