Why new unemployment data could cause mortgage rates to fall further

Mortgage rates could decline again now that the unemployment rate is ticking up again. Catherine Falls Commercial/Getty Images

Unemployment data released on Friday was not warmly greeted by millions of Americans. 

The overall unemployment rate ticked up to 4.3% in August, up from 4.2% in July. And just 22,000 jobs were added to the economy in the month. Additionally, revised data now shows employers cut 13,000 jobs in June as opposed to adding 14,000 as previously reported. That was the first decline since late 2020, when the economy was still recovering from the pandemic.

This news, combined with a stubborn inflation rate and higher interest rates on everything from personal loans to credit cards, can understandably leave many adults feeling frustrated. There is one positive development, however, that can arise from it – lower mortgage and mortgage refinancing rates for buyers and homeowners. Below, we'll explain why this new unemployment data could actually cause mortgage rates to fall further than they already have this year.

Start by seeing how low a mortgage rate you'd currently be eligible for here.

Why new unemployment data could cause mortgage rates to fall further

The next Federal Reserve meeting and, with it, any rate-cutting action, is set to conclude on September 17. Expectations around a rate cut have been high for this meeting, and as such, lenders started pricing in a reduction in the offers they provide borrowers. This is partially why mortgage rates declined earlier this summer and why they just hit an 11-month low this week.

Interest rate cuts are often issued when the economy needs stimulating, as most recently seen during the pandemic, when rates hovered near zero. A weakening employment market, then, could be the stimulation necessary for the central bank to not only cut rates, but to issue a larger than initially anticipated reduction when they do. If that happens, mortgage rates will follow and decline further than they already have.

This already happened last September when the Fed issued a larger-than-anticipated 50 basis point cut, and right before the rate cut was officially announced, mortgage rates plunged to a two-year low. It's possible that this can happen again this month. And predictions around that are starting to grow.

Earlier this week, the CME Group's FedWatch tool had a Fed rate cut down to a 4.00% to 4.25% range listed at around a 98% likelihood and a cut lower near zero. By Friday afternoon, however, the chances of a rate cut further, down to a range of 3.75% to 4.00% had grown to 10%, down from around 14% earlier in the day, after the unemployment report was released. In other words, the likelihood of a 25 basis point cut remains strong, but there's new potential for a bigger cut, which would cause mortgage rates to fall further.

There is some speculation involved here, of course, but recent rate history supports this possibility. So, if you're a homebuyer or owner looking for an often-delayed chance to refinance, it could be coming, perhaps sooner than you even thought.

Learn more about your current mortgage rate options here.

Why you should be monitoring the mortgage rate climate daily

As illustrated above, the rate climate is fluid, particularly now, with multiple data points for the Fed to ingest and act upon. 

All this means that you should be monitoring the mortgage rate climate daily for opportunities to lock in a below-average rate. Today's low rates may become an anomaly overnight, as seen over the last year when rates rose again as inflation became harder to chip away at. So take this time to compare lenders, explore rates and terms, and more importantly, make yourself as attractive a borrower as possible so that you're positioned to secure a low rate when it becomes available, even if that window of opportunity is relatively short.

The bottom line

A rising unemployment rate has multiple, inherent negative connotations, but for borrowers looking for lower rates, particularly on mortgages and refinancing, it could be a welcome development. Mortgage rates have already fallen for much of 2025 and, after Friday's unemployment report, they look likely to continue that downward trend, maybe even by larger amounts.