Labor market noise kept the mortgage outlook on edge into the March meeting
Federal Reserve governor Christopher Waller framed the next policy move as a close call, telling business economists that whether the central bank cut rates again in March depends squarely on whether January’s upbeat jobs data proved to be “signal or noise” for a labor market he described as fragile.
At the National Association for Business Economics (NABE) conference in Washington, Waller reminded his audience that he dissented in January after the Federal Open Market Committee voted to hold rates at about 3.6%, following three 25‑basis‑point cuts since September.
He said the earlier cuts came “because job gains had slowed and downside risks to employment had increased, amid somewhat elevated inflation.”
“I felt that the risk of a substantial downturn in the labor market combined with a limited risk of higher inflation warranted another cut,” Waller said.
“Even in the absence of some data due to last year’s government shutdown…the balance of risks for me were weighted toward further policy easing.”
Waller questions strength of jobs rebound
The January payroll report, he said, “came in substantially stronger than I and most forecasters and market participants expected,” with official data showing total jobs grew by 130,000 and private payrolls by 172,000.
“This report was clearly a surprise to the upside and suggests that the labor market may be turning a corner,” Waller said.
Yet he warned that “one month of good news does not constitute a trend.” Annual revisions, he said, turned 2025 into “one of the weakest years in decades outside of a recession,” with reported gains averaging just 15,000 a month.
He added that, after future revisions, “it seems clear that payroll employment in the United States probably fell in 2025,” a claim that has not yet been confirmed by the Bureau of Labor Statistics and remained subject to further data revisions.
Waller also cast doubt on how broad January’s strength really was. Health care and social assistance “accounted for nearly 125,000 of the 130,000 jobs” and construction may have been flattered by warm weather, he said, while “many other sectors lost jobs.”
Conflicting readings from private payroll providers and elevated layoff announcements led him to worry that the report “may contain more noise than signal.”
A surprise US jobs beat dims hopes for a March Fed rate cut.
— Mortgage Professional America Magazine (@MPAMagazineUS) February 11, 2026
Explore how mixed labor signals are shaping Fed policy and mortgage market expectations for 2026.https://t.co/qBFSWjesbg#economy #FederalReserve #jobsreport #monetarypolicy
What a pause or cut could mean for mortgages
On inflation, Waller said he continued to look through temporary tariff effects and estimated that “underlying inflation…is close to the FOMC’s 2 percent goal.”
With that backdrop, he told NABE that if February labor data confirmed January’s improvement, “it may be appropriate to hold the FOMC’s policy rate at current levels and watch for continued progress on inflation and strength in the labor market.”
But “if the good labor market news of January is revised away or evaporates in February…such a cut should be made at the March meeting. As things stand today, I rate these two possible outcomes as close to a coin flip,” he said.
Treasury yields, inflation expectations and geopolitical shocks could move mortgage rates more than a single Fed decision, particularly in the short term, even as mortgage rates historically drifted back toward fundamentals such as jobs and inflation over time.
Still, with 30‑year fixed rates just above 6% and only modest declines expected, Waller’s labor‑market test underscores that any further relief in borrowing costs hinges on whether January’s strength proved durable rather than statistical noise.
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