Rate update: Jobs report takes pressure off rates

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By G. Steven Bray

We have an interesting contrast setting up. As I mentioned last week, I’ve been paying more attention to inflation data recently as inflation is the enemy of low interest rtes. Recent economic data had shown budding signs of inflation, but last week’s jobs report kind of squashed that. Wage inflation was a third of expectations, and the previous month’s elevated number was cut in half.

What does that mean? Wages are the vast majority of business expenses. When wages rise, it puts pressure on retail prices. Wages hardly budged during the economic recovery, which resulted in negligible inflation. Last week’s jobs report suggests that wage growth remains weak, and thus prices are unlikely to shoot higher.

Here’s the contrast. Several members of the Federal Reserve recently stated they see rising inflation, which suggests they’ll be more aggressive about hiking interest rates to slow down the economy. A more aggressive Fed will tend to push mortgage rates up, but if wages aren’t growing, homebuyers won’t be able qualify. Instead of choking inflation, a more aggressive Fed may choke the economy.