The September 8 episode of Optimal Insights offers a timely and measured analysis of where things stand – and where they might be headed. Jim Glennon, Jeff McCarty, Alex Hebner, and James Cahill, share their perspectives on employment data, inflation metrics, and the Federal Reserve’s next moves.
Here’s what you need to know this week.
Key Insights and Trends
OBMMI Movement: The Optimal Blue Mortgage Market Indices (OBMMI) dipped to 6.3%, with signs of further softening toward 6.25%. This reflects a modest rally in the mortgage space, driven by economic data and Fed sentiment.
Treasury Yields: The 10-year Treasury yield settled at 4.05%, down from recent highs, suggesting a potential return to conditions seen during last fall’s brief refinance uptick.
Rate Lock Surge: Volume is up significantly – 20% to 40% above recent averages – signaling a potential fall rally in mortgage activity.
Employment Data: August’s jobs report was notably weak, with only 22,000 new jobs added and June’s numbers revised downward. The net gain of just 1,000 jobs underscores a seemingly fragile labor market.
Unemployment Rate: Ticking up to 4.3%, the unemployment rate remains near full employment but raises questions about underlying economic health.
Survey Discrepancies: The team highlighted the divergence between the Establishment Survey and Household Survey, noting that gig economy dynamics and multiple-job households complicate the employment picture.
Potential Rate Cut Scenarios and Stagflation Risk
The heart of the episode centered on four potential scenarios for the remainder of 2025, each with implications for mortgage professionals:
1. Status Quo
Modest rate cuts (25 bps) in September.
Inflation remains within 2.5 – 3%.
Employment stagnates.
Implication: Continued soft landing, with cautious optimism for mortgage rates.
2. Inflation Spike
Tariff-related costs push CPI and PPI higher.
Fed faces a dilemma: fight inflation or support employment.
Implication: Mortgage rates may stall or rise, complicating affordability.
3. Growth Concerns
Inflation stays low, but unemployment climbs.
Implication: More aggressive rate cuts likely, potentially favorable for mortgage rates.
4. Stagflation
The worst-case scenario: high inflation + low growth.
Historical precedent suggests long recovery periods.
Implication: Mortgage market faces headwinds from both affordability and demand.
Practical Actions You Can Take Today
Watch the Fed: The September 17 FOMC meeting is pivotal. CPI and PPI data this week will heavily influence the Fed’s posture.
Monitor Consumer Sentiment: Despite strong spending, sentiment remains near COVID-era lows. This disconnect may signal deeper economic unease.
Prepare for Volatility: Asset markets, including housing, may face corrections. Builders are pulling back, and lumber prices are down – potentially signaling a supply-side shift.
Stay Informed: The Optimal Insights Forum in Nashville this week offers Optimal Blue clients a chance to engage directly with capital markets experts and peers.
With employment data softening and inflation metrics in flux, the Federal Reserve’s next moves will shape the trajectory of rates and affordability. Whether we’re headed for a soft landing or something more complex, stay tuned to Optimal Insights to keep informed.
Listen to the latest episode of Optimal Insights for deeper analysis and expert commentary. Available on all major podcast platforms: https://optimal-insights.captivate.fm/listen
The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Optimal Blue, LLC.