Brokers know that besides service, reputation, and product, interest rates certainly figure into the lender equation for borrowers. Orion has a fine consistent reputation for giving our broker clients great service and a wide array of products, which is good because interest rates fluctuate every day and can be volatile and unpredictable.

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A strong economy means higher rates, and a slow economy (like during the pandemic four years ago) means lower rates. Last Friday the Non-Farm Payroll (NFP) data, an indication on the strength of the U.S. economy, came in much stronger than anticipated, showing no signs of weakness across the board. The three-month average now stands at 186,000, a significant increase from 117,000 just three months ago.

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Fed Chair Powell has been emphasizing the unemployment rate, which has dropped to 4.1%,nearing a round down to 4.0%. Other NFP indicators also point to strength, including hourly earnings, which could signal potential inflationary pressures ahead, even as weekly hours have declined. This has led to a shift in the market, pulling back on some of the aggressive rate cuts that were anticipated in recent weeks. Anyone predicting otherwise will have to wait for another day.

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While borrowersand the markets in general are eager for lower rates, the timing remainsuncertain. Inflation isn’t gone, and Orion’s management expects the Fed toreturn its focus to its dual mandate, rather than concentrating solely on thelabor market. The current market sentiment is polarized between recession fearsand hopes for a “soft landing.” The market has quickly adjusted to anticipate a25-basis point rate cut from the FOMC in November.

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In addition, another sign of a potential recession has evaporated. Namely, the Treasury yield curve un-inverted by another big step last week. The three-month Treasury yield has vacillated in the same range for the past few weeks following the drop after the monster rate cut by the Fed. But longer yields, which include mortgage rates, surged, starting with the one-year yield, with rate cut expectations getting slashed, and with inflation fears returning. This nearly fixed position at the short end and surge in yields further out on the yield curve caused it to un-invert by another step, but not the way folks had hoped.

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Many had hoped that the yield curve would un-invert amid a series of steep rate cuts that would bring down short-term yields fast, and that long-term yields would follow but more slowly. But longer-term yields had never fully bought into the rate hikes in the first place, with the 10-year yield remaining well below the Fed’s policy rates. Very low inflation in the future that has now come back into question. So, when the rate cutting started, longer-term yields went the opposite way: They jumped amid resurfacing inflation fears, and mortgage rates spiked.

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Orion and our AEs are fortunate that we have products “of all shapes and sizes” to fit your borrower’s needs. This has been a steady feature of ours and our veteran brokers over the years, regardless of interest rate climate.  

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