Mortgage Rates Drop Further
Investors were focused on tariffs last week. Higher tariffs reduced the outlook for global economic growth, which was positive for mortgage markets and negative for stocks. The major economic data caused little reaction. As a result, mortgage rates ended last week at their lowest levels since October.
Tariff Tensions Rise
Last Wednesday afternoon, President Trump announced that tariffs will be increased for many countries. China quickly responded by raising tariffs on U.S. goods. The direct effect on mortgage rates is that higher tariffs will raise prices, adding to current inflation levels. However, investors anticipate that this negative influence will be more than offset by the resulting reduction in global economic growth, which will reduce future inflationary pressures. Longer-term, the impact of higher tariffs will be determined by their magnitude and duration, which likely will depend on the outcome of negotiations with other countries.
Job Growth Beats Forecast
The key Employment report revealed that the economy gained 228,000 jobs in March, well above the consensus forecast of 140,000. Sectors displaying particular strength included health care, retail, and transportation. The unemployment rate unexpectedly increased from 4.1% to 4.2%. Average hourly earnings, an indicator of wage growth, were 3.8% higher than a year ago, down from an annual rate of 4.0% last month.
Economic Reports Released
Two other strong>significant economic reports released last week by the Institute of Supply Management fell short of expectations. The ISM national services sector index dropped to 50.8, well below the consensus forecast of 53.0 and the lowest level since June 2024. The national manufacturing index declined to 49.0, also below the consensus. Readings above 50 indicate an expansion in the sectors and below 50 a contraction. Service companies continue to outperform manufacturers.
Powell Stresses Uncertainty
In a speech on Friday, Chair Powell said that the Fed faces a “highly uncertain outlook” because of the new tariff policies, which are expected to raise inflation and lower economic growth. He explained that one challenge for the Fed is determining whether the tariffs will cause a “one-time increase” in the price level or an “ongoing inflation problem.” As a result, Powell concluded that officials will need to wait and see the effects of the tariff policies to decide the appropriate path for future monetary policy. Investors currently anticipate that the Fed will reduce the federal funds rate in June.
Mortgage Rates for the week of 4-7-2025