This past week, interest rates touched the best levels in 10 months. Let’s discuss what happened and look at the week ahead.

“Sweet dreams are made of this. Who am I to disagree?” Sweet Dreams by the Eurythmics

The Jobs Report

The first Friday of the month is an important one, as the Bureau of Labor Statistics releases the jobs report. With “promoting maximum employment” as one-half of the Fed’s dual mandate, the jobs report is critical for the Fed as it relates to hiking and cutting rates.

A week ago, on Friday, the BLS released the July jobs report, and it was a shocker. The headline number showed the economy created fewer jobs than expected, but the big negative signal was the enormous downward revisions to both May and June readings, which erased 258,000 jobs from what was previously reported.

The initial reaction to this report showed bonds, which love bad news, rallying strongly, with the 10-year note moving from 4.40% down to 4.20%, matching a 10-month low. This move in the Treasury market helped mortgages also improve to the best levels in 10 months.

Fed Rate Cuts Coming

Besides helping long-term rates like mortgages improve, this bad news substantially changed the outlook for Fed rate cuts. After the Fed meeting, the chance of a Fed rate cut in September was below 40%, and after the jobs report, the probability jumped to nearly 90%; so a Fed rate cut is coming soon.

Will a rate cut help mortgage rates? Not likely. The move we witnessed in long-term rates is the bond market already pricing in such a scenario. Additionally, the last time the Fed started cutting rates in September 2024, long-term rates like mortgages worsened. This was due to fear that rate cuts would help stoke inflation, which long-term bonds do not like.

What the market will be looking for in the future is whether the soft job gains in May and June are temporary, due to a lack of clarity on fiscal policy, or whether they signal a broader slowdown in the economy.

The good news on that front: we are still not seeing significant layoffs within the economy, as evidenced by initial jobless claims, which remain at historically low levels.

There are rumblings that the economy is also slipping into a recession. A recession is defined as two quarters of negative GDP. This is not in the cards for 2025, as the economy continues to grow, albeit at a slower rate.

Pivot Point

Interest rates, after a nice improvement, are now trading at key technical levels. Take a look at the chart section below to see where mortgage bonds trade and also follow what is happening with the 10-year note. The latter has been unable to close convincingly below 4.20% for the past 10 months. For rates to improve further, the 10-year note must move below this important floor of yield support.

30-Year Mortgage Rate

The 30-year fixed rate mortgage averaged 6.63% as of August 7, 2025, down from the previous week when it averaged 6.72%

4.20%

As mentioned, watch this level carefully. If the 10-year note moves below this floor, mortgage rates will likely improve further. The opposite is true.

Looking Ahead

Next week, it’s all about inflation. Part of the Fed’s dual mandate, the closely watched Consumer Price Index (CPI) is released. Inflation has continued to decline and is sitting at a four-year low. If CPI comes in lower than expectations, it could further pave the path for more Fed cuts. Again, the opposite is true. The Consumer Price Index is also one of the biggest interest rate market-moving reports, so follow this one closely.

Mortgage Market Guide Candlestick Chart

The chart clearly illustrates how rates remain confined within a wide range, with a ceiling capping rate improvement and a floor limiting rate increases. You can see on the right side of the chart how prices are pushed right up against the ceiling. As we shared above, for rates to improve further, mortgage bonds have to push above this ceiling.

Chart: Fannie Mae 30-Year 5.5% Coupon (Friday, August 8, 2025)