Category: Economy

Fed Meeting Recap

Policy Decision

The Fed held the federal funds rate steady, in line with expectations, and released its latest Summary of Economic Projections including the new Dot Plot.

Rates Outlook

The median projection still foresees two rate cuts in 2025. However, the tone shifted: seven members now anticipate zero cuts, up from four in the prior meeting.

Economic Forecast Revisions

• GDP growth was downgraded to 1.4%, from a previous 1.7%.

• Unemployment is now projected to rise to 4.5%, compared to 4.4% before.

• Core PCE inflation—the Fed’s preferred measure—was raised to 3.1%, up from 2.8%, signaling elevated inflation concerns.

 

Fed Chair Powell’s View

Powell cited rising tariff-related pressures as a key driver of the inflation forecast and reaffirmed the Fed’s forward-looking approach—citing the swift pandemic-era response—but did not address past delays in responding to rising inflation.

Governor Waller’s Take

In contrast, Governor Christopher Waller has called for a rate cut as soon as July. He argues tariffs’ inflationary impact will be short-lived, as only 10% of price pressures stem from imports and some costs are shared by businesses. With the labor market showing signs of weakening and policy already restrictive, he believes an early cut is justified—contingent on data—highlighting his potential as a future Fed Chair.

Labor Market Signals

Unemployment Trends

Initial and continuing claims have remained elevated for four consecutive weeks, hinting at labor market softening.

Late WARN Notices

The number of WARN notices hit nearly 46,000 in May, marking the highest level since the Great Recession/COVID era. If these notices materialize into actual layoffs, jobless claims could continue rising.

Tourism Headwinds

International visits to the U.S. dropped roughly 14% in March 2025 compared to last year. A sustained decline could translate to a $21 billion hit to tourism exports, which disproportionately affects the Leisure and Hospitality sector—a key source of recent job gains.

What This Means for Mortgage Rates

Interest Rate Outlook

The Fed’s more cautious inflation stance—particularly regarding tariffs and labor market weakness—may delay rate cuts. But Waller’s views suggest a potential cut as soon as July, contingent on data.

Bond Market Dynamics

Treasury demand remains solid—evidenced by successful recent 10- and 30-year auctions—supporting long-term rates even as global investors cautiously monitor economic and geopolitical risks.

Consumer Strategy

Overall, mortgage rates may remain relatively stable in the near term. If data weakens and the Fed pivots, we could see modestly lower rates later this summer into early fall, creating refinancing opportunities.

This morning, Stocks and Mortgage Bonds are both trading lower following reports that Israel has launched strikes on several nuclear sites in Iran. Under normal circumstances, we’d expect global uncertainty like this to trigger a selloff in Stocks, with money flowing into the relative safety of Bonds—often helping to improve mortgage rates.

However, the market reaction is different this time. The strikes have fueled concerns over oil supply disruptions, pushing crude prices up 8% today and over 16% in just the past week. Rising oil prices tend to stoke inflation fears, and inflation is the enemy of Bonds. That’s why we’re seeing pressure on both Stocks and Bonds simultaneously, with mortgage rates drifting higher as a result.

There’s also rising tension around reports that Israel may target Iranian oil refineries if Iran doesn’t deescalate its nuclear efforts. Should that happen, oil prices could surge even further—potentially driving inflation higher and putting upward pressure on interest rates. This is something we’ll be watching closely in the days ahead.

On a more encouraging note, yesterday’s 30-year Treasury auction was met with strong demand, following a solid performance in the 10-year auction earlier this week. Foreign interest in U.S. debt remained healthy, easing some of the recent concerns about reduced global appetite for Treasuries. That support helps stabilize long-term rates and is good news for the mortgage market in the longer run.

At Crestone Mortgage, we’re keeping a close eye on these developments and how they may affect mortgage pricing. As always, we’re here to help you navigate a changing rate environment with confidence.

Crestone Mortgage Economic Commentary: June 6, 2025

Labor Market Update: May 2025 Jobs Report

The U.S. labor market exhibited resilience in May 2025, adding 139,000 nonfarm payroll jobs, surpassing expectations of 125,000. The unemployment rate held steady at 4.2%, maintaining its position near historic lows. Average hourly earnings increased by 0.4% to $36.24, marking a 3.9% year-over-year rise, outpacing inflation and supporting consumer spending. 

Job gains were concentrated in service sectors, notably healthcare (+62,000), leisure and hospitality (+30,000), and social assistance (+16,000). Conversely, manufacturing, retail, and construction sectors showed weaker performance, with the federal government shedding 22,000 jobs due to administrative cuts. 

Despite the positive headline figures, underlying data revealed some cautionary signs. The labor force participation rate declined to 62.4%, and the labor force shrank by 625,000 individuals. Additionally, job gains for March and April were revised downward by a combined 95,000. 

Banking Regulation and Treasury Market Implications

In a significant policy development, Federal Reserve Vice Chair for Supervision Michelle Bowman outlined a comprehensive plan to reform and ease bank oversight regulations. She criticized the current supervisory methods as overly subjective and punitive, especially toward large banks that meet capital and liquidity requirements but still receive unsatisfactory ratings. Bowman proposed revising the ratings framework, reducing the weight of subjective assessments, and reassessing capital requirements, including leverage rules affecting low-risk assets like U.S. Treasury debt. 

Complementing this, Treasury Secretary Scott Bessent proposed reducing the supplementary leverage ratio (SLR) for banks. The SLR, implemented post-2008 financial crisis, requires large U.S. banks to maintain 5% capital against all assets, including U.S. Treasuries. Lowering the SLR could make it easier for banks to hold more Treasuries and lend more freely, potentially easing borrowing costs and stimulating economic growth. 

These regulatory changes aim to enhance banks’ capacity to invest in Treasury securities, potentially stabilizing the Treasury market amid rising yields. However, market reactions have been mixed. While some analysts view these measures as supportive of economic growth, others caution that banks may remain hesitant to increase Treasury holdings due to recent financial instability and preference for short-term securities. 

Implications for Mortgage Markets

For mortgage lenders and borrowers, these developments carry significant implications. If banks increase their holdings of Treasuries, demand for these securities could rise, potentially leading to lower yields. Since mortgage rates are closely tied to Treasury yields, particularly the 10-year note, this could result in more favorable mortgage rates.

However, the effectiveness of these regulatory changes in achieving the desired outcomes remains uncertain. Banks’ actual investment behaviors, broader economic conditions, and ongoing fiscal policies will all influence the trajectory of Treasury yields and, by extension, mortgage rates.

Conclusion

The May 2025 jobs report indicates a steady labor market with areas of strength and emerging caution. Simultaneously, proposed regulatory reforms aim to enhance banks’ capacity to support the Treasury market, with potential downstream effects on mortgage rates. Crestone Mortgage will continue to monitor these developments to provide clients with informed guidance in navigating the evolving economic landscape.