3 key takeaways from a week of economic upheaval 

As the dust settles following the recent flurry of economic data releases and the Federal Reserve's July decision on short-term interest rates, some clarity on what's happening with the housing market is emerging.

These are the three main takeaways from the economic data and decisions announced last week.

The jobs report was a big deal: The surprising downward revisions for May and June along with the lower than expected number of new jobs added in July point to a deteriorating labor market, which could impact short-term interest rates and mortgage rates in the coming weeks. 

The U.S. Bureau of Labor Statistics report released on Aug. 1 has already had an impact on mortgage rates. Mortgage News Daily estimated the 30-year fixed rate averaged 6.57% on Aug. 4, down from 6.81% a week ago and the lowest level since early October 2024.

One reason for the downward drift is that more investors now expect short-term interest rate cuts to begin in September after the Federal Reserve chose to hold rates steady during its July 29-30 meeting. While not directly related, a cut in short-term rates would suggest that the economy and inflation are cooling.

This dip in rates could provide house hunters with an opportunity to lock in a deal before the summer ends, suggested Daryl Fairweather, Redfin's chief economist. When compared to May of this year, the current drop has added roughly $20,000 in purchasing power for those with a $3,000 monthly budget, according to Redfin.

"While housing costs are still fairly high, the recent decline in rates boosts purchasing power and improves overall homebuying conditions," Fairweather said.

Inflation concerns persist: The complicating factor is inflation, which continued to rise in June with core prices up 2.8% year-over-year. That remains above the Fed's 2% goal and is trending in the wrong direction for a rate cut.

If the Fed does decide to cut interest rates in September amid a weakening labor market and an uptick in inflation, mortgage rates are likely to climb again.

Tariff impact is still a wild card: President Donald Trump's early August trade deal deadline came and went, but the forecast remains cloudy since the U.S. has granted some extensions amid ongoing negotiations with many of its trade partners.

As of Aug. 4, most countries face a baseline tariff of 15%. However, several nations have been singled out for higher rates, including Brazil, Switzerland and India. On Aug. 1, Fitch Ratings pegged the effective U.S. tariff rate at its highest level in decades at 17%.

As companies work through the inventory that they built up in anticipation of tariff hikes, consumer prices are expected to climb — and that will hamper any homebuying recovery.

"In the third quarter, we can expect to see more tariff-driven inflation, which may deter the Fed from lowering borrowing rates," said Selma Hepp, chief economist at Cotality. "Overall, this keeps consumers cautious when it comes to large purchases, like a 30-year mortgage, and homebuying will remain suppressed."