Mortgage Rates May Bounce a Little After Mixed January Jobs Report

Takeaway: The January jobs report was a mixed bag, but generally pointed to a stronger-than-expected labor market. Mortgage rates may see a little bounce off this data, but not much, as the Fed will continue to be expected to hold cuts until mid year.

The unemployment rate unexpectedly declined from 4.1% to 4.0% and would have declined to 3.9% if not for the annual benchmark revisions. Every February, the Bureau of Labor Statistics (BLS) updates the employment and population counts that underpin this report using more accurate data than what is available at the time of initial publication. The adjustments are especially large this year because the surge in immigration meant that population data was more outdated than usual. The result was a small increase in the unemployment rate of 0.1 percentage points, meaning that, absent the data adjustment, the unemployment rate would have fallen by 0.2 percentage points, a large change for one month. The unemployment rate was also 4.2% as recently as November 2024, so there has been significant tightening over a short period of time.

However, only 143,000 jobs were added in January, a slightly disappointing number, relative to the 170,000 expected. Furthermore, January has been unusually strong in the past few years as the normal seasonal patterns have shifted post-pandemic. So, the miss in 2025 feels especially notable. January may have been adversely affected by the LA fires, even though the BLS saw no discernible effect on their survey response rates. And January’s growth is not too far from the roughly 150,000 jobs per month pace for 2024. Also on the brighter side, revisions to November and December now show 100,000 more jobs added than previously reported.

With a still strong labor market, inflation just above target, and much White House policy uncertainty, the Fed is unlikely to signal further rate cuts before May or June. While mortgage rates have fallen slightly in recent weeks, they are likely to remain high and at risk of significant volatility. Surprising economic data, changes in the Fed’s tone, and new policy announcements from the White House could all cause mortgage rates to increase or decrease quickly.

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