This past week, interest rates increased slightly after hitting their lowest levels in months. The shift wasn’t dramatic, but it’s worth unpacking why it happened and what might be on the horizon. From tariff rumors to government spending plans, global markets are reacting and interest rates are along for the ride. Let’s break it down and peek at what’s coming next.

“We live in a land of confusion” Land of Confusion by Phil Collins

The lyric feels apt this week as markets grapple with mixed signals. Rates had been trending down for weeks, offering some relief to borrowers, but that momentum stalled. What changed? A mix of policy uncertainty and unexpected moves in the bond market. Here’s the rundown.

Tariff Trouble

Uncertainty about tariffs and those taxes slapped on imported goods has markets twitching. Stocks and bonds have been bouncing around like a ping-pong ball as headlines shift hourly. One day, tariffs seem locked in; the next, they’re paused, scaled back, or tweaked to spare certain industries. Traders hate ambiguity, and this flip-flopping is keeping everyone on edge. Why does this matter for interest rates? Tariffs can mess with inflation. Higher costs for goods mean higher prices and that influences what central banks like the Federal Reserve do with rates. The sooner the world gets a clear tariff picture, the less jittery markets (and rates) will be. For now, it’s a waiting game.

“Whatever It Takes”

Over in Europe, a German official lit a match under the bond market by declaring the country should spend “whatever it takes” to fund an emergency defense plan and bolster critical infrastructure. It’s a bold stance. Germany is usually the poster child for fiscal discipline but it spooked bond traders. Here’s why: when governments ramp up spending, they often borrow more by issuing bonds. Flood the market with new bonds, and the value of existing ones drops; a phenomenon traders sum up as “bonds hate more bonds.” Falling bond prices mean higher yields, which push interest rates up.

After Germany’s leaders huddled to hash out this budget proposal, the reaction was swift. The German 10-year bond yield rocketed from 2.40% to 2.80% in just over 24 hours; the biggest one-day jump in 40 years! Since bond markets are a global web, the shockwave spread. Japan’s bond yields ticked up as Asia felt the heat, and here in the U.S., the 10-year Treasury note climbed from 4.10% to 4.30% in a single day. It’s a stark reminder: markets are hypersensitive to government debt. If spending looks unchecked, bond traders hit back by driving rates higher and that’s exactly what unfolded this week.

Labor Market Worries

Closer to home, the labor market threw a curveball. The ADP employment report, which tracks private-sector hiring, landed weaker than anyone expected. Only 77,000 jobs were added last month which is barely half the 150,000 analysts had penciled in. Businesses seem to be hitting pause on hiring, likely waiting for the dust to settle on tariffs, taxes, and other policy unknowns. The good news? They’re not slashing jobs either. The unemployment rate’s holding steady at a solid 4%, low by historical standards. Still, if hiring stays sluggish or layoffs creep up later, it could nudge the Federal Reserve to step in with rate cuts to juice the economy. For now, it’s a yellow flag, not a red one.

Fed Rate Predictions

Speaking of the Fed, the crystal ball gazers are at it again. “Fed Funds Futures” is a market-based tool that bets on future rate moves and now pegs three rate cuts for 2025, up from two just a week ago, with the first likely in June. That’s a shift from earlier forecasts and reflects growing bets that softer job growth or tariff-driven inflation might force the Fed’s hand. But these predictions are fluid as new data on inflation or jobs could flip the script fast. The Fed’s stuck in a tricky spot: keep rates steady to fight inflation, or cut them if the economy wobbles. We’ll see which way they lean as 2025 continues to unfold.

The Big Picture

Zoom out, and the trend’s been clear: interest rates have slid meaningfully over the last six weeks, dropping from their peaks as markets priced in slower growth and possible Fed cuts. But this week’s combo of Germany’s spending bombshell, tariff chaos, and a wobbly labor report has put the brakes on that decline. Rates aren’t soaring, but they’re not falling further either, at least not yet. It’s a tug-of-war between global forces and domestic data, and no one’s winning decisively.

30-year Mortgage Rates

The 30-year fixed rate mortgage averaged 6.63% as of March 6, 2025, down from the previous week when it averaged 6.76%.

What’s Next?
Next week’s a big one for economic clues. Here’s what to watch:

• Consumer Price Index (CPI): This inflation gauge is due out soon. The “core” CPI (stripping out volatile food and energy) is forecast to dip to 3% year-over-year, the lowest in over a year. If it lands softer than that, expect more rate-cut buzz.
• JOLTS Report: The Job Openings and Labor Turnover Survey tracks openings, hires, and quits. It’s a window into whether the job market’s cooling or holding firm and critical for Fed decisions.
• Tariffs and Germany: No set date, but any firm news on global trade or Germany’s budget could jolt markets again.

Keep your eyes peeled and we’ll dig into it all next time!

Mortgage Market Guide Candlestick Chart

For homebuyers and refinancers, mortgage rates are the name of the game and they’re tied to mortgage bond prices. Check the chart below: it’s a one-year snapshot of the Fannie Mae 30-year 6% coupon. The rule’s simple. When bond prices climb, mortgage rates drop; when prices tank, rates rise. On the right side, those red candlesticks signal trouble: prices have slipped from their recent highs, pushing rates up off their best levels. It’s not a collapse, but it tracks with this week’s broader rate uptick. If tariff clarity or softer inflation data kicks in, we might see green candles (rising prices, falling rates) again. Stay tuned.

Chart: Fannie Mae 30-Year 6.0% Coupon (Friday, March 7, 2025)