Leading analysts at MBA and Oxford Economics say October’s labor surge effectively settles the December rate call
Two of the mortgage industry’s most closely watched research houses backed a December Federal Reserve rate hike Friday, responding to an October jobs report that left little room for debate.
The Mortgage Bankers Association (MBA) and Oxford Economics both said the month’s employment data — 165,000 non-farm payrolls added and the unemployment rate falling to 4.1%, according to the Bureau of Labor Statistics (BLS) — gave the Federal Open Market Committee (FOMC) the cover it needs to act.
The underlying numbers reinforced the case further. Upward revisions to prior months totaled 84,000 jobs, pushing the three-month hiring average to 137,000, nearly three times the 48,000 monthly pace recorded over the past year.
The MBA’s verdict: rates won’t fall anytime soon
Mike Fratantoni, SVP and Chief Economist at the Mortgage Bankers Association in Washington, DC, said the breadth of October’s gains underlined the resilience of the US labor market.
“Job growth broadened somewhat in October with gains in professional services, transportation and warehousing, and manufacturing as well as health care,” Fratantoni said.
He flagged one complicating signal: the U-6 underemployment rate — a broader measure of labor market slack — climbed to 7.9% from 7.6% the prior month, and workers who had lost positions were taking longer to re-enter the workforce.
As the rate outlook crystallized around BofA’s projection of three consecutive Fed rate hikes in 2026, Fratantoni was direct: “Inflation is too high. MBA continues to anticipate that the Fed’s next move will be a rate hike, and that means mortgage rates are unlikely to drop anytime soon.”
MBA now forecasts a December 2026 hike followed by a further increase in the first quarter of 2027.
Oxford Economics: AI and energy hold the wildcard
Matthew Martin, Senior US Economist at Oxford Economics in New York, agreed on the December direction but identified conditions that could soften the 2027 outlook.
“Wage growth ticked higher in October, but with annual gains still running around 3%-3.5% and productivity growth north of 2%, the labor market is still not a source of upward pressure on inflation,” Martin said.
“AI and energy spillovers are the main risks, which is why the Fed will be attentive to recent moves in financial markets.”
Martin noted that sustained declines in tech stocks and oil prices could eliminate the case for a further hike in early 2027, an outcome that would offer some relief to brokers navigating rates near 7% since September’s first hike since 2023.
For now, the December call remains firm, consistent with J.P. Morgan’s earlier projections of further tightening throughout the cycle.
The weak September jobs report that briefly reduced hike expectations now looks, in retrospect, like a temporary reprieve.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
