September Market Update: The Fed Raised Rates, Then the Data Began to Shift

September was a month where the market story evolved almost week by week.

Early in the month, inflation data strengthened the case for a Federal Reserve rate hike. The Fed followed through, raising its benchmark Federal Funds Rate by 25 basis points at its September meeting—the first rate hike in three years.

In the following week, several Fed officials suggested another increase could be appropriate. But by the latest MBS Highway report, softer-than-expected inflation and a surprisingly weak jobs report had added a new dimension to the Fed’s decision-making.

Meanwhile, housing continued to show resilience despite higher mortgage rates.

That’s the September story: The Fed raised rates to address elevated inflation, but the latest economic data is now giving policymakers more to consider before deciding what comes next.

Hiring Slowed Sharply

The clearest shift came from the latest jobs report.

The economy added just 29,000 jobs in September, well below the roughly 90,000 expected. The unemployment rate also increased from 4.1% to 4.2%.

And the weakness wasn’t limited to September.

July payrolls were revised down by 31,000, leaving the month with a net loss of 10,000 jobs. August was revised from 162,000 jobs added to 133,000. Combined, those revisions removed 60,000 jobs from previously reported growth.

What that means: Hiring appears to be losing momentum, and previous months weren’t as strong as originally reported.

But the labor market isn’t telling one simple story. ADP reported 90,000 private-sector jobs added in September, above expectations of roughly 70,000, while initial unemployment claims remained relatively low at 197,000.

The labor market isn’t uniformly weak, but the latest BLS report gives the Fed another reason to watch employment conditions closely before deciding its next move.

Inflation Remains Elevated, but the Latest Report Was Softer Than Expected

Inflation was a major reason the Fed raised rates in September.

Earlier in the month, headline CPI was running at 3.4% annually, while wholesale inflation moved higher. The Fed ultimately responded by raising its benchmark rate 25 basis points.

The latest PCE report, however, provided a somewhat different signal.

Headline PCE inflation held at 3.4% annually, below the 3.7% estimate. Core PCE, which excludes food and energy, held at 3.0%, also below its 3.3% forecast. The Dallas Fed’s Trimmed Mean measure showed underlying inflation at 2.2% over the previous year.

What that means: Inflation remains above the Fed’s 2% target, but the latest readings suggest some underlying price pressures may be more moderate than the headline numbers indicate.

Combined with softer employment data, the latest inflation numbers give Fed officials more information to weigh as they approach their remaining meetings this year.

It’s also important to remember that the Federal Funds Rate is not the same as mortgage rates. The Fed sets the overnight borrowing rate for banks. While Fed policy can influence borrowing costs throughout the economy, mortgage rates are influenced by a broader range of market and economic factors.

Housing Continues to Show Resilience

While economic data shifted, housing continued to hold up.

Existing home sales fell 2% from July to August, marking a third consecutive monthly decline. At the same time, the number of homes available for sale increased 5.9% year over year.

New construction told another part of the story. Housing starts fell 2.6% in August and building permits declined 2.7%, but new home sales subsequently rose 6.4% from July to August, reaching an annualized pace of 684,000—the strongest pace of the year.

Most recently, Case-Shiller showed national home prices rising 1.9% year over year. Prices also gained nearly 3% between March and July, despite mortgage rates beginning to rise during that period. FHFA separately reported conventional-loan home prices up 2.6% from a year ago.

What that means: Higher mortgage rates are affecting housing activity, but the national data cited here does not show home values broadly declining.

Buyers are also seeing more existing-home inventory than a year ago, while the national data cited in this report continued to show year-over-year home-price appreciation.

Of course, national trends don’t necessarily reflect conditions in every local market, and past home-price performance does not predict future values.

What Changed During September?

Looking at the progression of September’s reports helps put the month into perspective.

At the beginning of September, inflation data kept a Fed rate hike firmly in play.

Then, the Fed raised rates by 25 basis points.

In the following week, comments from Fed officials increased expectations that another hike could be appropriate.

Finally, the month’s latest report brought 29,000 jobs added, downward revisions to previous job growth, and PCE inflation below expectations. The report noted that expectations for an October rate hike had subsequently fallen significantly.

That doesn’t mean the Fed reversed course in September—it didn’t.

It means the Fed raised rates, and then the incoming data changed the conversation about what might happen next.

What This Means for Buyers, Sellers, and Real Estate Professionals

This is a planning market, not a prediction market.

September is a good example of why.

Within a matter of weeks, the conversation moved from inflation increasing the likelihood of a rate hike, to the Fed actually raising rates, to softer jobs and inflation data changing expectations around the next decision.

At the same time, housing remained resilient, with more existing-home inventory than a year ago and national home prices continuing to appreciate based on the data cited in this report.

For buyers and sellers, the goal isn’t to perfectly predict the next Fed meeting. It’s to understand what today’s economic and housing data could mean for your individual situation and make informed decisions based on your goals and circumstances.

For real estate professionals, that means helping clients look beyond a single headline and understand the broader market picture.

If you or your clients are evaluating financing options, Princeton Mortgage is here to help you understand the available options and determine what may fit your individual circumstances.

Source: MBS Highway Market Updates

This is not a commitment to lend or extend credit. All loans are subject to credit approval and individual review. Rates and terms are subject to change without notice and may vary depending on borrower qualifications, credit profile, property type, occupancy, and other factors. Equal Housing Lender. Princeton Mortgage | NMLS #113856 | 439 Grand Avenue, Ewing, NJ 08628 | (609) 737-1000 | Visit nmlsconsumeraccess.org for licensing and information.