Mortgage Rates Today, October 2, 2026: It's Jobs Report Day!

The bigger picture

Mortgage rates climbed again yesterday, though not as sharply as they might have. The yield on the 10-year U.S. Treasury note (which mortgage rates often loosely track) caught a break at midday, as bond vigilantes turned their ire onto UK and French government bonds. We can't be sure how long this will last.

Jobs reports are often the most influential of all economic reports. While they currently share that status with inflation reports, today's report remains crucial. For a chance of lower mortgage rates, perhaps for days or weeks to come, we must hope it shows fewer new jobs created in September than the 84,000 markets are expecting.

Scroll on down for much more on the forces affecting mortgage rates today, including both the economic reports on this morning's calendar.

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What's coming up?

Normally, economic reports are the main drivers of changes to mortgage rates. But these are not normal times.

And, until recently, only blockbuster reports, mostly concerning employment and inflation, have had an appreciable impact over much of this year. More important have been the general mood in markets and economically consequential news. News items concerning the war, employment, inflation, tariffs, and deficit funding are especially influential at the moment.

The Fed

On Sep. 16, the Federal Reserve's rate-setting body (the Federal Open Market Committee or FOMC) hiked general interest rates for the first time in three years.

That vote was unanimous. But official Fed documents revealed that FOMC members are deeply divided over what comes next.

"Sixteen of 19 officials expect another increase at either their October or December meeting," reported MarketWatch soon after the meeting. "For next year, 10 officials signaled they see no more moves, but eight officials are penciling in another quarter-point increase."

Such small majorities within the FOMC suggest the number and timing of future rate hikes will likely be driven by key data: inflation and employment reports in the coming months. The Fed's twin mandates are to keep the inflation rate down at around 2% (something it's failed to achieve over the last five years) and to maintain healthy employment levels.

Unfortunately, we think it is likely that inflation will remain elevated well into 2027, even if the Iran war ends soon. We suspect that the global oil market is in such bad shape that it will take a long time for gas and diesel prices to fall back to anything close to pre-war levels. More on that below.

And recent stronger-than-expected economic data mean we might not see rising unemployment, leaving the Fed free to focus on inflation.

Yesterday's PCE price index showed inflation rising more slowly than expected. And that encouraged investors to think the FOMC might skip a rate hike at its next meeting on Oct. 28. Last night, the CME FedWatch put the chances of such a hike at only 24.9% (it had been 38.2% 24 hours earlier), down from 68.6% a week ago.

The FOMC doesn't directly set new fixed-rate mortgage rates. But the factors that influence its decisions (and to a lesser extent the decisions themselves) certainly do move those rates, usually ahead of Fed rate-change announcements.

The war and mortgage rates

Following a pause in fighting, there has been intermittent military action involving the U.S. and Iran, mostly earlier in September.

Oil prices have moved higher on most days since, including yesterday. The price of global benchmark Brent crude was at $107.83 a barrel overnight.

Over the week ending Sep. 19, Houthis escalated their attacks, striking at Saudi cities, including the capital Riyadh, along with oil facilities. "Saudi Arabia on Saturday confirmed that Yemen's Houthi rebels tried to attack its capital with a ballistic missile, the first targeting of Riyadh since the escalation in fighting with the Tehran-backed rebels that has opened a new front in the Iran war," reported NPR.

Fighting appears to have continued since then, but has received little media coverage. There are recent reports that the Saudi east-west pipeline, which was closed following Houthi airstrikes, has reopened. However, some experts doubt it's yet carrying much oil.

"The European Union Aviation Safety Agency issued an advisory ​to airlines to avoid Saudi airspace, according ‌to a bulletin posted on its website on Wednesday, following a recent increase in attacks by the Iran-aligned ​Houthis," reported Reuters on Sep. 30.

"Three vessels reported being struck on Tuesday, September 29, in the area around the Strait of Hormuz as Iran appears to be lashing out to demonstrate that it is still threatening vessels," said The Maritime Executive on Sep. 30. "While it brings the total number of vessels struck to four so far this week, observers point to increasing oil flows and vessel traffic in the region."

On Sep. 25, the Iranian government offered a seven-day ceasefire, during which it said it would open the Strait of Hormuz and begin talks on nuclear weaponry. But the U.S. rejected the offer.

Peace talks with Iran and mediators had already stalled before recent escalations, and President Donald Trump adopted a new strategy of economic warfare on Tehran. "Treasury Secretary Scott Bessent said the U.S. is launching a new campaign to isolate the Iranian regime, warning that countries and companies that do business with Tehran will face the wrath of the Trump administration," The Wall Street Journal reported on Aug. 24. Some think that initiative has turned out to be a damp squib, but it's still early days.

Iran is certainly in a weak position economically, and waiting for it to buckle may be a smart way to resolve the conflict. However, markets remain anxious for a rapid reopening of the Strait of Hormuz.

The war, oil prices, inflation and markets

Mortgage rates respond to war news because a prolonged full or partial closure of the Strait of Hormuz could again choke off 20% of the world's oil supply, putting additional pressure on gas, diesel, fertilizer, and many other prices. It would take years to build the infrastructure necessary to bypass the Strait completely.

Rising diesel prices (and to a lesser extent gas prices) tend to drive up mortgage rates because they're inflationary. Those rates are largely determined by a type of bond, the mortgage-backed security (MBS). And bond purchasers are wary of buying bonds when inflation is too warm because increasing prices eat into the value of the fixed incomes that bonds deliver. Lower demand = lower MBS prices = higher yields = higher mortgage rates.

On Sep. 14, The Wall Street Journal reported on a gloomy outlook among oil industry leaders when they met in Austin, TX, the previous Friday. "American oil executives warned for months that the prolonged closure of the Strait of Hormuz was bound to cause a fuel crisis. Now, they say it is here.

"Commercial fuel stocks around the world have been depleting for more than six months, and strategic crude reserves can’t be tapped much further," continued The Journal.

Strategic petroleum reserves in the U.S. and elsewhere globally are now at multi-decade lows, meaning there's less room to cushion consumers from rising gas prices. It may not feel like it, but this method of suppressing pump prices has been in place almost since the start of the conflict. And some observers worry that it will grow increasingly difficult to access remaining inventory for technical extraction reasons.

The U.S. Energy Information Administration says strategic petroleum reserve crude inventories fell to 284,552,000 barrels for the week ending Sep. 18, marking the lowest level since 1982. The reserve stood at 415,064,000 barrels before the Iran conflict began.

"Exports of crude from the Strait of Hormuz have largely returned to levels seen before the outbreak of the Iran war, as oil producers and the shipping industry have found alternative ways of transporting crucial fuel out of the Middle East," reported The Guardian on Oct. 1.

However, that news has yet to affect oil prices positively, and Brent crude rose by 5.58% on the day the story ran. "The return of oil tankers through the Strait of Hormuz was supposed to bring down the price of crude, gasoline and diesel, taming inflation and lowering the world’s borrowing costs," said The Wall Street Journal on the evening of Oct. 1. "It isn’t happening."

The refinery problem

Meanwhile, many oil refineries in the Middle East and Russia are out of commission due to damage from the separate wars involving Iran and Ukraine. That began by sending oil prices lower on most days — why buy crude oil when you can't refine it? But that trend has moderated and often reversed more recently.

Regardless, the refinery crisis has so far translated into gas prices that are significantly higher than a month ago and dramatically higher than a year ago, alongside diesel prices that have been frequently setting new all-time highs. That's because a lack of refining capacity exacerbates rather than moderates supply issues for consumers and businesses, while demand remains fairly steady.

In his Substack post on Aug. 13, Nobel Prize-winning economist Paul Krugman backed up what we've been saying for some months. He referred to the "crack spread," which is the difference between the price of a barrel of crude oil and that for a barrel of "cracked" (aka refined) oil products, which he said had back then exploded by about $35 since the start of the Iran conflict.

"So while the price of a barrel of crude is up around $25, the price of the products refined from that barrel is up about 25+35=60 dollars per barrel," wrote Krugman.

Why? "The shortage of refining capacity has, in turn, held crude prices down: Buyers aren’t willing to pay extremely high prices for crude oil they can’t refine," continued Krugman. "Or to put it a different but equivalent way, the cutoff of oil shipments through the Strait of Hormuz in effect required a large rise in global oil prices to ration demand, but much of that rationing has taken place through a rise in the crack spread rather than a rise in crude oil prices."

On Sept. 23, Torsten Slok, Apollo's chief economist, explained in an e-newsletter why diesel is such an issue: "The US Gulf Coast diesel crack spread cleared $100/bbl for the first time on record in August against a normal range of $15 to $30," he wrote. "Unlike a gasoline spike, which lands on consumers as a one-time tax on discretionary spending, diesel is an intermediate input embedded in the delivered cost of nearly every physical good, from freight and rail to agriculture and construction.

"That means the rise in diesel prices does not stay in the energy line of the CPI [consumer price index] but migrates with a lag into core goods and services, which is exactly the kind of pass-through the Fed cannot dismiss as transitory," Slok continued. In other words, it creates sticky inflation that's hard to clean up.

Of course, any sudden good news from the Middle East could still send mortgage rates tumbling, regardless of that day's economic reports. Unfortunately, sudden bad news could — as we've seen all too often — send them higher.

Why bond markets act differently from stock markets

Mortgage rates are largely dictated by the yields on a type of bond, the mortgage-backed security (MBS). So, we focus on bond markets.

On May 7, The New York Times explored why stock markets and bond markets have been behaving so differently from each other since the start of the conflict in the Middle East.

Investors in stocks have been wagering that U.S. companies will continue to generate large profits during the conflict. And the stock market typically cares only about whether dividends and company values will continue to rise.

"But the bond market is another matter," said The Times. "Bond traders have maintained a much sharper focus on risk. Yields remain correlated with shifts in the price of oil. As oil prices have spiked and inflation has risen, yields have risen and bond prices, which move in the opposite direction, have fallen."

More recently, bond yields (and mortgage rates) have risen on concerns about the level of government debt, too.

Fifth Third Bank's take on the jobs report

Bill Adams, Fifth Third Bank's (formerly Comerica Bank's) chief economist, gave his take on this morning's jobs report:

"The September jobs report is forecast to show a good increase in payroll employment, pushing the unemployment rate down to the lowest since early 2025. Unemployment among recent graduates likely retreated as more members of the Class of 2026 found footholds in the workforce, but this demographic will remain a soft spot for the job market. Wage growth likely was modest and lagged the CPI (The September CPI report will be released in mid-October)."

Mortgage rates today

There are two economic reports on today's MarketWatch economic calendar. But only the jobs report (formally called the employment situation report)is crucial.

Jobs reports contain four headline figures. Here is what markets are expecting from those this morning:

• September nonfarm payrolls (new jobs created that month) — Markets expect 84,000 new jobs, way down from August's 162,000
• September unemployment rate — Markets expect the rate to hold steady at 4.1%
• September average hourly earnings— Markets expect earnings to have risen by 0.3% month over month, unchanged since August
• September average hourly earnings— Markets expect earnings to have risen by 3.1% year over year, unchanged since August

Also this morning, we're due factory orders for August. Markets expect them to have risen by 0.2% that month, more slowly than July's 0.9%.

Typically, mortgage rates move higher on better-than-expected data and lower on worse-than-expected numbers.

What's next?

Next week, we're due FOMC meeting minutes, PMIs for the services sector, and the first reading of October's consumer sentiment index.