I. The Bureau of Labor Statistics (BLS) has been releasing employment reports for several years running that have been ridiculously inflating job growth – and sending rates way up!
What is so frustrating is that rates stayed way up for far too long, based on that bad data. Many people thought the Biden administration was putting pressure on the BLS, but we continued to see the flawed data after Mr. Trump was elected – telling us that BLS models themselves are just badly outdated and flawed.
I suspect the bond market pays attention to BLS data because the Fed does. But why they do so is anyone’s guess – when actual data (that does not include “statistical estimates”) continually proves BLS data very wrong.
ADP payroll reports are one source of data, as is the QCEW (Quarterly Census of Employment and Wages) report. It is now indicating that actual job creations were far lower (hundreds of thousands lower) than the BLS estimated – and we’re again seeing huge downward revisions to BLS reports.
TLDR: The recent QCEW report indicates that the labor market is as weak as many naysayers are saying. The Fed pays close attention to the labor market, as does the bond market. So, this makes it more likely that rates will fall in 2026.
II. Why Mortgage Banks and Democrats Hope Trump Is Wrong
Economist Larry Kudlow posted this on X recently: “Get ready for Trump’s 5% economy. We haven’t done it for over 40 years, but I believe it well could happen next year, and or the year after that. Everybody is underestimating President Trump’s re-imagination and rejuvenation of a new capitalist path to prosperity.”
But the last time we saw 5% growth rates, without coming out of a lockdown period, mortgage rates approached 10%. And the next time we average 5% growth rates, mortgage rates could well approach 10%.
So once again, I don’t see how Mr. Trump can have both low rates and a booming economy – when the bond market responds to two things primarily: (1) growth expectations; and (2) inflation expectations.
Fast growth means high rates.
Rates remained so low for the 2010s because we were growing far below normal rates! We grew at a 4% rate in the late 1980s, at about a 3% rate in the 1990s on average, and at under 2% in the 2010s.
We grew too slowly (costing us trillions in overall wealth) because of too much government (governments don’t create wealth; they only consume it); too much regulation; and ironically too low of rates (fostering mal-investment and too much financialization instead of actual wealth creation). Keynesians also like to blame slow productivity growth and demographic changes, among other things.
Mortgage banks hope Mr. Trump is wrong about the booming economy because they desperately need lower rates to revive the mortgage industry – which has been operating far under capacity since 2022 (over 30% of mortgage banks were still losing money in 2025).
Democrats of course hope Mr. Trump is wrong because they desperately want to win midterm elections – and nothing helps the party out of power more than a weak economy.
The QCEW report implies that mortgage banks and Democrats may get their wishes – at least in the first half of 2026.
