Traders nudged cut odds higher, but mortgage rates stay cautious
The US labor market delivered another disappointment in February, reviving talk of Federal Reserve rate cuts even as mortgage rates looked set to remain stubbornly high.
Nonfarm payrolls fell by 92,000, the third decline in five months, while the unemployment rate ticked up to 4.4%, signaling a job market that clearly cooled.
Behind the headline number, weather disruptions and a major health care strike weighed on hiring.
Health care payrolls dropped by 28,000 after a walkout at Kaiser Permanente sidelined more than 30,000 workers during the survey week, temporarily suppressing reported employment.
Wage growth, however, still ran hotter than expected, with average hourly earnings up 0.4% on the month and 3.8% year over year.
“Well, that was ugly. February’s employment data misses the mark across the board,” Bankrate senior economic analyst Mark Hamrick said.
“Labor force participation, gauging those working and looking for work fell to 62%, a worrying sign that some workers were discouraged amid the softening seen over the past year.”
San Francisco Fed president Mary Daly said the report underscores that “the hopes that the labor market was steadying, maybe that was too much,” pointing to inflation “printing above target and oil prices rising” as reasons officials had to stay cautious.
First American senior economist Sam Williamson said February’s data “argue against a re-acceleration in hiring and instead point to a labor market that remains soft,” but he added that “the report is unlikely to materially alter the Federal Reserve’s near term policy outlook,” with unemployment still in ranges consistent with full employment.
Williamson noted that “the balance of risks remains tilted toward patience rather than urgency,” while softer readings could still surface as dissents from more dovish policymakers at the March Federal Open Market Committee meeting.
Rate‑cut hopes vs FedWatch reality
Futures traders see a 34.5% chance of a 25-basis-point cut in June after the report, with some internal desks highlighting markets that still point to an early‑summer move.
Other indicators are more skeptical. CME’s FedWatch tool most recently implied that just one quarter‑point cut in 2026, centered on the September meeting, has become the base case, with lower odds of an earlier move. Only days earlier, futures pricing pointed to a second cut in December.
Mortgage impact seen but not a pivot
MBA chief economist Mike Fratantoni said “the job market is softening and inflation is expected to increase due to a spike in oil prices resulting from the war in Iran,” and warned that “we do not expect the FOMC to cut rates any time soon given the heightened inflation risk.”
He added that MBA is “sticking to its forecast that mortgage rates will remain in a range of 6% to 6.5% over the forecast horizon.”
Williamson emphasized that for housing, “the more important factor is not the federal funds rate, but the path of longer term Treasury yields, which mortgage rates tend to follow.”
Even with limited scope for near‑term declines, he said, “mortgage rates have moved well off their cyclical highs, home price growth has cooled from pandemic era extremes, and household incomes continue to rise,” supporting a “firmer spring market” provided yields hold near current levels.
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