Resilient hiring data and stubborn inflation push rate jump odds above 60%
The United States economy added 172,000 jobs in May, well above the 85,000 analysts expected. For mortgage professionals already bracing for a high-rate environment, the data's headline strength may deepen the pain.
Released Friday by the Bureau of Labor Statistics (BLS), the employment report held the unemployment rate steady at 4.3% and reinforced what many on Wall Street now consider inevitable: the Fed's next move will be a rate increase, not a cut.
The figure also trounced private-sector signals published earlier in the week. Payroll processor ADP reported 122,000 new private-sector jobs added in May.
"MBA continues to anticipate that the Fed's next move will be a rate hike, and that means mortgage rates are unlikely to drop anytime soon," said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA).
Rate futures moved sharply in the immediate aftermath of the release. Traders are now pricing a greater than 60% probability of a raise by October and better than 98% odds of an increase by December's meeting, according to CME FedWatch data.
The Fed convenes June 17 for its next decision, the first chaired by Kevin Warsh following his appointment by president Donald Trump.
Read more: Key dates that will define Kevin Warsh's opening months as Fed chair
Amir Nurani of Left Coast Leaders says borrowers and brokers had been pricing in falling rates, but rising inflation and energy costs are now reversing that outlook, with bond market pressures suggesting rates could move higher and potentially revisit 7%.https://t.co/3keufR20OP
— Mortgage Professional America Magazine (@MPAMagazineUS) June 2, 2026
A labor market split in two
The May data reflects a market pulling in two directions. Health care, leisure and hospitality, and local government combined for approximately 160,000 of the 172,000 jobs added, or 93% of total gains, per BLS.
The financial sector shed 22,000 positions in May alone and has now lost 107,000 jobs over the past 12 months.
Wage growth decelerated to a 3.4% annual pace, trailing April's headline inflation rate of 3.8%, itself a three-year high, driven by energy costs that have surged since the US-Israel campaign in Iran began Feb. 28.
"That slowdown is impacted by the shift in job growth from higher-paid to lower-paid sectors over the past year. It is notable that wage growth is running below the pace of inflation, putting a strain on household budgets," Fratantoni said.
Retail gasoline prices have climbed more than 40% over that period. Wholesale inflation, what businesses pay for goods and services, jumped to 6% in April, according to separate BLS data.
As the Fed's own minutes have confirmed, a majority of policymakers already back tightening if price pressures persist.
What this means for mortgage professionals
Fed governor Lisa Cook stated last week: "The risks remain tilted toward higher inflation."
Beth Hammack, president of the Federal Reserve Bank of Cleveland and a voting member of the Federal Open Market Committee (FOMC), warned Tuesday that "monetary policy may not be sufficiently restrictive to bring inflation down to 2%."
Read more: Mortgage rates fall from nine-month high — is relief finally here?
The BLS will release May consumer price data next week. For brokers and originators counting on meaningful relief before year's end, Fratantoni's baseline is unambiguous.
As a growing number of market watchers now concede that five-handle mortgage rates are off the table for 2026, the question is no longer whether a raise is coming, it's when.
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