Rate update: Will jobs report send rates to record lows?

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By G. Steven Bray

Just as markets were getting comfortable with the idea of a stronger US economy, last week’s 2nd quarter GDP report was a bucket of cold water. The economy grew at an anemic 1% for the first half of this year. In response, bond markets rallied and mortgage rates dropped.

Once again, we’re within reach of record lows. Whether we challenge them in the near term probably depends on this week’s jobs report. Remember that last month’s report was really strong and started a conversation that maybe the economy was heading up. A stronger than expected inflation report provided additional cover for statements from Fed governors that further rate hikes this year seem appropriate.

Another strong jobs report this week won’t guarantee a rate hike, but it’s hard to argue that a stronger job market won’t result in higher growth in the second half of this year. Stronger second half growth is probably just what the Fed needs to start raising short-term rates again, and that will put pressure on mortgage rates. A weaker report could send rates to new record lows.

For now, we’re likely to see the usual push and pull of market forces, like today’s huge corporate bond issue that pushed rates up a little, but absent something extraordinary, rates are likely to hang in the current range until Friday’s jobs report.