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The odds of a Federal Reserve interest rate cut later this month fell dramatically Thursday as new data showed strong growth in the labor market, diminishing the case for lower rates.
The U.S. economy added 147,000 jobs in June, beating analyst expectations, the Bureau of Labor Statistics reported. The unemployment rate fell slightly to 4.1%.
In financial markets, the chances of a Fed rate cut in at the next policy meeting in late July plunged to just 5% following the jobs report, down from 24% a day earlier, according to the CME Group’s FedWatch Tool. That’s because the Fed is seen as unlikely to lower its policy rate until the labor market weakens.
For homebuyers, it means mortgage rates are unlikely to fall much in the near future, which comes as unwelcome news at a time when affordability concerns remain paramount.
Average rates for 30-year fixed home loans have hovered above 6.6% since December, which was the last time the Fed cut its policy rate. Mortgage rates last averaged 6.77% as of June 26, according to Freddie Mac.
“High interest rates and the lingering lock-in effect are still keeping many would-be buyers and sellers on the sidelines,” says Realtor.com® Senior Economist Jake Krimmel. “For housing demand to meaningfully rebound, affordability must improve—through both a more balanced market and wage growth that keeps up with living costs.”
The strong June employment report will bolster Fed Chair Jerome Powell‘s case for taking a “wait-and-see” approach before cutting rates—a path that has drawn increasing political fury from the Trump administration.
On Wednesday, President Donald Trump again called on Powell to resign, after his top mortgage regulator, Fannie Mae and Freddie Mac Chairman Bill Pulte, demanded a congressional investigation of the Fed chair.
Trump, who promised lower mortgage rates on the campaign trail, has heaped fury on Powell for leaving the Fed’s benchmark rate unchanged in a range of 4.25% to 4.5% since December.
Powell, for his part, has continually insisted that monetary policy cannot be subject to political pressure, saying the Fed is focused solely on its dual mandate of maximum employment and price stability.
The Fed uses higher interest rates to rein in inflation and lower rates to stimulate the job market.
Even if the Fed were to lower its policy rate when it next meets on July 29 and 30, it might have little impact on mortgage rates following the strong June jobs report, says former Fed vice chairman Roger Ferguson.
“If the Fed were to cut in the face of these kind of numbers, the market might not accept it as a sign that they too should be lowering rates. The long end of the curve might even show higher rates, as people worry about inflation,” Ferguson told CNBC.
In addition to the strong employment gains reported in June, the new report made upward revisions to the job gains for April and May, in another sign of a robust labor market.
With these revisions, total employment in April and May combined is now 16,000 higher than previously reported.
Local government employment offsets DOGE cuts
The June employment data showed that the biggest job gains occurred in state government and health care, while the federal government continued to lose jobs.
Employment in state government increased by 47,000, largely in education (+40,000). Employment in local government education also gained 23,000.
Meanwhile, the federal government lost another 7,000 workers in June amid DOGE cuts and efficiency initiatives. Total federal employment is down by 69,000 since reaching a recent peak in January.
Health care continued to trend up, adding 39,000 jobs in June, while social assistance employment also followed an upward trajectory with 19,000 more workers.
Other major sectors showed little change from the prior month, including construction, manufacturing, transportation, retail, and hospitality services.