Mortgage rates eased again this week as employment growth looks set to stall, raising downside risk to economic growth. This week’s inflation report showed inflation is likely to continue to move in the right direction. The focus has now entirely shifted toward labor market risks as the lagged impact of monetary policy plays out.

Federal Reserve officials, along with Chair Powell, recently noted that the Fed does not ‘seek or welcome further cooling in labor market conditions’. Employment growth is slowing, with downward revisions to the previous two months reports. Worker productivity and employment growth determine how fast the economy grows. Absent a sustained increase in worker efficiency, a decline in employment growth could result in stalling output, putting the economy at greater risk of recession.

Yields and mortgage rates depend on expected economic growth and Fed expectations. Higher downside risk to economic output will pull yields lower along with the mortgage rates that tend to follow.

Since next week’s FOMC interest rate cut is fully anticipated, mortgage rates aren’t expected to move much lower at the time of next week’s announcement. That is unless the Fed chair points to larger rate cuts in the future than previously thought. With that said, expect more volatility as the market processes the new information coming from the Fed’s latest dot plot.