Fed rate cut ‘almost certain’ after ‘disappointing’ jobs report 

The August jobs report fell far below expectations and had an immediate impact on mortgage rates, which quickly began trending downward.

The U.S. added 22,000 jobs in August, according to the Bureau of Labor Statistics (BLS). Prior to the Sept. 5 report's release, economists had projected the addition of roughly 75,000 jobs.

The data is "a little bit disappointing," White House economic advisor Kevin Hassett told CNBC, adding that he expects the BLS will "revise up" its August numbers. The Sept. 5 report is the first that the federal agency has released since President Donald Trump fired BLS Commissioner Erika McEntarfer last month, alleging without evidence that earlier jobs data was "manipulated for political purposes."

Jobs numbers for June were meanwhile revised down, while jobs numbers for July were revised slightly up. Combined, the changes reflected 21,000 fewer jobs than the BLS previously reported.

Unemployment also ticked up slightly from 4.2% in July to 4.3% in August — the highest level since October 2021, noted First American Senior Economist Sam Williamson.

Mortgage rates plummet, real estate stocks rise

The stock market was down overall in the first few hours after the report's release, but real estate stocks were up, likely in anticipation of a drop in mortgage rates and the possibility that such a decline could activate the sluggish housing market.

Mortgage rates fell sharply after the report's release, with Mortgage News Daily (MND) pegging the daily rate on Sept. 5 at 6.29%. Just one day earlier, Freddie Mac reported that the weekly average 30-year fixed-rate had fallen to 6.5% following several consecutive weeks of declines.

As MND CEO Matthew Graham noted in a Sept. 5 blog post, "bad news for [the] labor market is good news for rates."

What does this mean for a fall rate cut?

Federal Reserve Chair Jerome Powell previously indicated that the Fed will be closely tracking labor market and inflation data as the central bank considers cutting short-term interest rates. Last month, he signaled that the Fed is prepared to lift its months-long freeze on rates.

Two consecutive weak jobs reports suggest that it is "almost certain" the Fed will cut rates during its September meeting, according to Bright MLS Chief Economist Lisa Sturtevant.

"A 25-basis point is the most likely move by the central bank," Sturtevant said.

Williamson agreed, noting that a September rate cut would provide "some relief to prospective home buyers facing elevated mortgage rates and prices." For buyers who have been holding back, "this could be the opening drive that begins to move the chains on affordability — especially if inventory improves and price growth continues to moderate," Williamson said.

Fed rate cut hinges on a 'wildcard'

Though the weakening labor market points to a likely fall rate cut, inflation remains a "wildcard," Sturtevant noted. While inflation data for August is due out next week, the most recent numbers showed that core prices were still rising, with overall inflation stubbornly above the Fed's target level.

So far, the tariffs introduced by the Trump administration haven't resulted in significant spikes in inflation. "With inflation not reaccelerating and job growth fading, the Fed may see this as an opportunity to recalibrate," Williamson said.

Even so, next week's report will be key, Sturtevant predicted. "If the data show rising inflation in August, the Fed's decision will be complicated."