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Job Growth Exceeding Expectations

Hello everyone.  Welcome back to the Mortgage Rundown.  Today we are going to talk about what’s happening with the capital markets.

The market got quite a surprise last week when the non-farm payroll report came out showing that the economy added 353,000 jobs in January, which was almost double expectations.  Even though higher rates were slowing down the economy and specifically the labor market, January’s data hopefully is an anomaly.  The report also showed the unemployment rate stayed at 3.7% while wage inflation actually moved higher at a 4.5% annual rate.

This sent treasury rates higher with the 10yr now 20bps higher than it was prior to the jobs report.  Friday’s data was another reminder that taming inflation is not smooth or linear and we should come to expect a fair amount of volatility this year as the economy adjusts to a very restrictive Fed policy.

The one thing that is going to give the Fed a lot of pause in terms of lowering rates is both jobs and inflation data.  And given how strong the data came in for January, the market is beginning to price in no Fed moves until at least May, possibly even June.  If the report shows weakness in Feb and January proves to be an anomaly, then we could see rates come down in 30 days.

With all that being said we do have inflation data coming out next week where the headline CPI rate is expected to drop to 2.9%.  If that large of a drop doesn’t happen, we could see rates back up further as the market adjusts their expectations that the FOMC may not move until the 2^nd half of 2024.

That’s it everyone from the capital markets desk this week.  Thank you all for watching and have a great day.