HousingWireHousingWire
Is the labor market finally signaling that it’s time to cut interest rates?
That’s the question following the May jobs report from the U.S. Bureau of Labor Statistics, which shows a mild deceleration of job growth. Employers added 139,000 positions, down from the revised April number of 147,000.
Unemployment held steady at 4.2%. The job gains were concentrated in the sectors of health and education (63% of gains), leisure and hospitality (35%) and financial activities (10%).
The Federal Reserve has been measured in its approach to cutting interest rates, which have remained high and kept mortgage rates at just below 7%. A weak jobs report may prompt Chairman Jerome Powell to consider a rate cut sooner than later.
“If the labor market continues to cool, the Fed will likely cut the Federal funds rate in September and in most markets, lower mortgage rates will unleash housing demand that has been pent up for the last couple of years, increasing home sales activity in the latter part of 2025,” said Bright MLS economist Lisa Sturtevant in a statement.
“Unless the labor market contracts substantially, there are still many prospective homebuyers who would be eager to take advantage of lower borrowing costs, more inventory, and potentially more favorable prices.”
Federal policy remains a wild card in the Fed’s decision-making process. The trade war initiated by President Donald Trump appeared to cool following the pause on the global tariff regime announced on April 2 and the reduction of the tariff on China from 145% to 30%.
But negotiations with China have not made progress and Trump has responded by new threats of raising the tariff again. He also floated raising the levy on all steel and aluminum imports from 25% to 50%.
The tariffs are largely expected to push up inflation, and the chaos around the policy has already eroded consumer confidence to the point that prospective buyers are considering or have already paused their search for a new home.
All eyes will be on the Consumer Price Index report on Wednesday, though there’s uncertainty around that as well. The Wall Street Journal reported that some economists are beginning to question the accuracy of the data in the event that they paint a negative picture of federal trade policy.
The Trump administration has publicly pressured Powell into cutting rates, including FHFA Director Bill Pulte and Trump himself.
