Fed Watch – 1/9/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker and thank you so much for joining me for this January 9th edition of Fed Watch.

Well, it’s delayed Jobs Friday, but we did get that December result today. Results came in slightly softer than expected, about 50,000 jobs created. However, this is still showing stability in the labor market. And I want to point out that more than anything, these results are very much backward looking. Employment is not a leading economic indicator, it is a lagging economic indicator. Hiring decisions are more often than not made retroactively. So it’s no surprise to us that in the wake of all of the uncertainty in 2025, all of that even outright pessimism that we saw last year, we’re probably going to get a few more monthly job numbers that come in just a little soft. That’s before we even start talking about all of the immigration issues, right? Deportations or self-deportations, taking away from that denominator of our labor force availability.

What’s really interesting, though, is when we get to the breakdown of these jobs numbers, I’m sure you’ve seen the headlines by now that 2025 represented the weakest year in hiring since 2020 in the pandemic. And while that is true, I think that almost misses the point that of the jobs that were created, the vast, vast majority were created in things like healthcare and social services. Now, these are not the economic stalwarts. These are not the key macro indicators that move with the business cycle. So as we look at hiring going forward, keeping in mind that labor availability is still relatively tight, that key skills gaps do still exist, keep in mind there are going to be some clear out-performers, some clear sectors that just will need more workers and can’t hire enough, whereas there are others where we do still see those individuals who are out of work likely to stay out of work for longer. Maybe some reskilling is needed, but there’s a little bit more friction happening in those specific sectors.

Now, as we’re talking about the Federal Reserve, today’s result didn’t seem to move the needle too much. At the margin, a weaker jobs number does push us more likely to see rate cuts rather than not, but market odds are still overwhelmingly in favor of the Fed holding rates at their late January meeting. More to come on that. We do still have a couple of weeks. We’ll see what additional data rolls in before we get that meeting.

I did want to mention one other factor. As we’re talking about interest rates here, we have talked a lot on this show recently about the increasing divergence between what the Fed is doing with their target rate versus what actual borrowing costs are doing. And this is clearly a view that the bond market is taking. I’ve said it before, the bond market is driven by supply and demand, not simply the Fed waving their magic wand, making interest rate cuts that are made across the board for every interest rate that’s out there. So it was very interesting today to see President Trump come out and say that Fannie Mae and Freddie Mac should buy $200 billion of additional mortgage-backed securities.

Now, for reference, this is something that was really in the limelight during 2007, 2008. At the peak, each of these companies, Fannie Mae and Freddie Mac, held more than $900 billion in mortgage-related investments. So currently, they hold a combined roughly $250 billion. Most recent data is available through November. So under current regulation, there is some additional upside there. They could purchase up to $225 billion each in these mortgage-backed securities. So, there is about $200 billion there of headroom, right? Of room that we could grow, see these additional investments.

If in fact this does happen, it’s very likely to put some downside pressure on mortgage rates. Again, not coming from any underlying credit worthy issues, but coming just from that political pressure to sway the supply and demand to kind of tip your hand on one side of that scale. Anytime we’re talking about Fannie Mae and Freddie Mac, I know 2007, 2008 are coming roaring back. Keep in mind, there are very different standards for these loans today. We heard so much about the subprime zero document loans that were prevalent back at that point in history. But anytime we do see, like today, very low default rates or delinquency rates on mortgages, the question is, how much room is there to grow? How much could that number go up? And what would be the ultimate effects of, say, something like a 2030 style event coming on these government agencies?

So I’m sure there’s more to come on this. We’ll be unpacking it in future weeks. I hope you’ll join us. Until then, thank you so much for catching us today on ITR Economics Fed Watch.