This Week In A Nutshell: Rates are likely to remain volatile this week. Markets are balancing a still-solid economy against the worsening energy shock, a more hawkish Fed, and Friday’s jobs report.
Upcoming Attractions
The key economic data release this week will be Friday’s April jobs report. Job growth is expected to slow from March’s surprisingly strong pace, with economists looking for about 60-70k new jobs. The unemployment rate is expected to remain at 4.3%. Given recent volatility in the labor market data, one month is unlikely to settle the debate over whether the labor market is weakening meaningfully. But with the Fed increasingly worried about inflation risks from the Iran war, it would probably take a very weak report to increase odds of a Fed rate cut.
Before Friday, we’ll also get JOLTS job openings and ISM services on Tuesday, ADP employment on Wednesday, and jobless claims on Thursday. The JOLTS report is expected to show openings edging down again, but the weekly claims data have been surprisingly strong recently and will probably matter more for the market’s read on whether layoffs are actually rising. Fed officials will also be out in force this week, including Kashkari and Hammack, two of the regional bank presidents who dissented at last week’s meeting because they no longer thought the Fed should maintain an easing bias.
Any meaningful developments in Middle East peace negotiations or energy markets could very well overshadow all of the economic data.
Last Week’s Highlights
The Q1 GDP and labor market data last week were broadly solid, but Iran war developments and a surprising Fed meeting dominated the headlines. The Middle East conflict continued to put pressure on energy prices. July Brent briefly hit $115 before settling back to $108 and retail gasoline rose to $4.39/gallon, up 41% from its 2025 average. The longer the conflict drags on, the more likely it is that higher gas prices start to weigh more meaningfully on growth and consumer sentiment.
The Fed meeting delivered two surprises. First, three regional Fed presidents—Hammack, Kashkari, and Logan—dissented from the statement because they did not think the Fed should keep signaling that the next move is more likely to be a cut than a hike. Second, Powell said he would stay on the Board of Governors “for a period of time” after his term as chair ends. That slows the pace at which the White House can reshape the Board. The upshot is that rate cuts look less likely in the near term unless the labor market weakens very clearly.
Diving a Little Deeper
The most important shift from last week is that the Fed is moving from a “waiting to cut” stance to “waiting for more clarity on whether to cut or hike.” That feels like a subtle change, but it matters for mortgage rates because long-term rates depend on where investors think the Fed is headed over the next few years.
There are three reasons the Fed is getting more cautious:
- Inflation is still too high. Core PCE inflation is now running around 3.2% year over year, the highest since late 2023. Even if some of that reflects temporary factors, it is hard for the Fed to sound confident about rate cuts when inflation is moving in the wrong direction.
- The Iran war is making the inflation picture more muddy. Normally, the Fed ignores higher gas prices. But if gas prices stay high long enough, they can bleed into consumer expectations and other prices.
- The labor market has not weakened enough to force the Fed’s hand. It is still a strange labor market: job creation has slowed a lot over the last year, but layoffs remain low and the unemployment rate is still in the low 4s. That combination gives the Fed room to wait.
For housing, the implication is that the path to lower mortgage rates depends on weaker growth rather than simply slower inflation. The hawks’ growing influence on the committee suggests that the bar for resuming cuts is rising, but the bar for a hike is still very high. Mortgage rates are likely to stay within a narrow range until either the energy shock resolves or the labor market deteriorates more clearly.
Redfin Housing Market Reports
San Francisco’s Luxury Home Sales Jump 22% As Median Price Nears $7M
- Luxury home sales in San Francisco rose 22.2% year over year in March, the fifth straight month of double-digit increases.
- The median luxury sale price climbed to $6.8 million, the highest March level on record, as AI wealth and tight inventory continue to fuel the market.
- Nationally, the luxury market is much softer: luxury home sales fell 2.4% year over year and luxury price growth slowed to 3.6%, the weakest in five years.
Nearly Half of Americans Oppose AI Data Centers in Their Neighborhoods, While 38% Support Them
- 47% of U.S. residents oppose construction of an AI data center in their neighborhood, while 38% support it.
- Younger Americans are much more supportive: 50% of millennials and 48% of Gen Zers support neighborhood data centers, compared with 38% of Gen Xers and 22% of baby boomers.
- AI data centers face more neighborhood pushback than new apartment complexes or mixed-use developments, partly because of concerns about electricity use, water use, noise and environmental strain.
The post Redfin Economists’ Weekly Take: Volatile Rates Ahead as Fed Turns Hawkish and Energy Shock Builds appeared first on Redfin Real Estate News.
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