Weak Jobs Data Will Likely Fuel Multiple Rate Cuts by the Fed in 2025

WASHINGTON—Last week’s very weak jobs report has prompted many to predict not only one but multiple interest rate cuts by the Federal Reserve, beginning with the first after its meetings on Sept. 16-17.

Prospective homebuyers who have mostly stayed on the sidelines this summer have taken notice as mortgage application activity has picked up markedly of late. CNBC reported on Friday that job creation sputtered in August and the data will likely cause the Federal Reserve to begin cutting rates.

Nonfarm payrolls increased by just 22,000 for the month of August, while the unemployment rate rose to 4.3%, according to a Bureau of Labor Statistics report. Economists surveyed by Dow Jones had been looking for payrolls to rise by 75,000.

Lawrence Yun, chief economist with the National Association of Realtors, said, “The weakening job market assures several rounds of short-term interest rate cuts by the Fed in the upcoming months. The long-term interest rates, including mortgage rates, are already falling to near 12-month lows. That will enlarge the pool of eligible homebuyers.”

He noted that current home sales are approximately 25% lower compared to normal sales periods due to higher mortgage rates. “That is why the prospect of lower mortgage rates will help boost home sales,” Yun predicted.

Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni agreed that the weak jobs data will prompt action from the Federal Reserve next week.

“The slowdown in the job market should be more than enough for the FOMC to cut its short-term rate target at its September meeting, as this is not a picture of an economy at ‘maximum employment,’ and the greater risk now appears to be that the job market will slip further in the months ahead,” he said. “The pace of any additional cuts will certainly be tempered by the ongoing risk of a pickup in tariff-induced inflation.”

On Sept. 10, the MBA reported that mortgage applications increased 9.2%for the week ended Sept. 5 from one week earlier.

“Mortgage rates declined for the second consecutive week as Treasury yields moved lower on data indicating that the labor market is weakening. The 30-year fixed rate decreased to 6.49%, down 20 basis points over the past two weeks to the lowest since October 2024,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

He added, “The downward rate movement spurred the strongest week of borrower demand since 2022, with both purchase and refinance applications moving higher. Purchase applications increased to the highest level since July and continued to run more than 20% ahead of last year’s pace. There was also a pickup in ARM applications, both in terms of level and share, as ARM rates were considerably lower than fixed-rate loans, which typically benefits homebuyers.”