Member Services Desk
Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending August 1, 2025.

Economist Views

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Following perhaps the busiest, data and events-wise, week of the year, markets will face a lighter week ahead. The past week’s FOMC outcome, despite containing two dissents (Governors Waller and Bowman, as covered and forewarned in last week’s edition), was generally considered mildly hawkish by the markets. On closer analysis, the dissenters appear to be outliers within the FOMC. And neither the statement nor Powell hinted at a rate cut in September. In a nutshell, Fed policy remains in wait-and-see mode; see our charts for further color. The past week’s data was generally consistent with moderately stable economic conditions. Housing sales data continued its recent trend of weak readings. The upcoming week contains mostly second-tier data but will nonetheless provide further guidance on economic trends.

Factory Orders:  The June report is expected to reflect a pullback from the strong May report that was driven by transportation equipment, primarily civilian aircraft.

Durable Goods Orders:  Forecasts for the June final report call for a 10.7% decrease, owing to a decrease in transportation orders. The ex-transportation forecast is for a slight uptick of .5%.

Cap Goods Orders Non–defense Ex Air:  The June final figure is expected to reveal an increase of 1.65% in new orders compared to the decrease reported in May.

Trade Balance:  Forecasts call for the June report to reveal a small increase in the deficit number to $72.6bn compared to the May figure of $71.5bn.

S&P Global US Services PMI:  The July final figure for the Services PMI is projected to be 53.1.

ISM Services Index:  The ISM figure is expected to reveal a slight increase to 51.4, remaining in expansion territory and portraying continued modest growth.

Initial & Continuing Jobless Claims:  Jobless claims continue to be a closely watched weekly figure of potential weakness in the economy. The spring-early summer rising trend in Continuing Claims has subsided in the last few weeks. As Fed Chair Powell remarked in this post FOMC communique, the supply and demand for labor appear to be declining, thereby likely containing a rise in jobless claims and/or the unemployment rate.

Key Market Trends

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CHART 1 UPPER LEFT Sources: RBC Capital Markets; FHLB-NY. The following quotes from Fed Chair Powell’s post-FOMC communique summarize the Fed’s wait-and-see posture. On the economy: “It seems to me and to almost the whole committee that the economy is not performing as if restrictive policy is holding it back inappropriately. A modestly restrictive policy seems appropriate.” On inflation and tariffs: “We are going to have to watch and learn empirically how much of this and over what period of time. We have learned that the process will probably be slower than expected at the beginning. But we never expected it to be fast. And we think we have a long way to go to understand exactly how we will be.” On employment: “You have a labor market that’s in balance, albeit partially because both demand and supply for workers is coming down at the same pace, which is why the unemployment rate has remained roughly stable…and why I said we do see downside risk in the labor market.” The overall tone of the FOMC outcome was taken as mildly hawkish by the market, as Powell noted the need to observe a few more inflation and jobs reports but did not “swing the door open” for a cut in September. Here we show, as of midday Thursday, the latest market pricing (3-month OIS Fed Funds swap forwards) vs. the Fed’s last (FOMC June 18th) dot plot. The market is now a bit above the Fed’s December 2025 dot of 3.875%, as the market’s forward for year-end Fed Funds trades ~4%. For 2026 and 2027, the market prices for a faster pace of cuts are notably below the dots, especially in 2026.

CHART 2 UPPER RIGHT Sources: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of late Thursday, the UST term curve was modestly changed from the week prior, with shorter tenors higher by a few bps and longer tenors lower by a few bps. The 2-year was ~3.5 bps higher, the 5-year unchanged, and the 10-year ~4 bps lower. The FOMC outcome prompted the market to pare back the timing and pace of projected rate cuts. As of late Thursday afternoon, the market priced end-2025 Fed Funds at 4.00%, or 8.5 bps higher than a week ago. The market’s end-2026 forward is ~3.21%, or 13 bps higher than last week.

CHART 3 LOWER LEFT Sources: Bloomberg. While this past week’s GDP report revealed a first-estimate headline 3% QoQ annual gain, following a .5% decline in Q1, the details within were decidedly not as sturdy. In recent months, economic reports have been subject to dramatic swings, owing to inventory front-loading and tariff-induced volatility. Since net trade is an input to the GDP calculation, these effects can be more pronounced in the GDP reports. A data point in the GDP report that averts some of this noise, via stripping out volatile components such as trade, government spending, and inventories, is US Final Sales to Private Domestic Purchasers. As seen here, this figure (RHS, %), at 1.2%, portrays a weaker growth backdrop and a declining trend in recent quarters. If a growth slowdown leads to a softer jobs market, the Fed will surely be more open to a rate cut.

CHART 4 LOWER RIGHT Sources: Bloomberg. Here we can see the main reason for the Fed’s reluctance to cut rates, namely that inflation readings are above their 2% target and not exhibiting a clear or sustained downtrend. The latest Personal Consumption Expenditures price index (White, RHS, %), the Fed’s favored inflation gauge and just released this past week, was up 2.8% YoY for June. The month-on-month reading was up .3%. Also shown here is the Fed’s target rate (Gold, LHS, %) and the 10-year UST yield (Green, LHS, %). As noted in a recent edition, a Fed rate cut may not necessarily lead to lower longer-tenor rates.

FHLBNY Advance Rates Observations

Front-End Rates

• As of Thursday midday, short-end rates were mixed vs. the week prior. Overnight was 6 bps higher from last week, owing to the usual month-end dynamics of UST settlements and dealer balance sheet management. The 1-week-to-3-month sector fell by 1bp. The 4-to-6-month zone rose by 2 to 4 bps, as the market pared back its pricing of potential Fed rate cuts. While robust Money Market Fund (MMF) AUM levels and negative net T-bill supply in the past few months had underpinned demand for short-end paper and benefited our funding spreads, the backdrop has shifted now that the debt ceiling was raised via the budget bill signed on July 4th. Net T-bill supply has now turned positive, as Treasury rebuilds its General Account. This change should reduce liquidity in the financial system, and it has also led to some widespread widening in our paper. MMFs, however, are expected to absorb sizable portions of the T-bill supply, as they switch some of their substantial AUM from repo to T-bills and thereby contain any further severe impacts for bills and/or our paper.
• The market will monitor the week’s mostly second-tier data. Pressure on Overnight rates should subside as the week progresses.

Term Rates

• The longer-term curve, as of late Thursday and generally mirroring the moves in USTs and swaps, was flatter from the week prior. The 2-year rose by ~3 bps, the 5-year declined a bp, and the 10-year fell by ~5 bps. Kindly refer to the previous section for color on market dynamics and changes.
• On the UST term supply front, the upcoming week serves a hefty slate of 3/10/30-year auctions. This oncoming supply may cause rates to back up on Friday, 8/1, in the afternoon, particularly if yields decline on a weak jobs report earlier in the day, as dealers prepare to digest the bonds. Note that UST auctions usually occur at 1pm and can occasionally spur volatility around that time. Please contact the Member Service Desk for further information on market dynamics, rate levels, or products.

Reminder:  FHLBNY’s 0% Development Advance (ZDA) program is open and running – This program provides members with subsidized funding in the form of interest-rate credits to assist in originating fixed-rate loans or purchasing loans/investments that meet one of the eligibility criteria under the Business Development Advance, Climate Development Advance, Infrastructure Development Advance, Tribal Development Advance, or the new Housing Development Advance. Members can apply for interest rate credits up to $250,000. Please contact Member Services Desk to learn more and check out our ZDA page.

Price Incentives for Advances Executed Before Noon: In effect as of Tuesday, September 5, 2023, the FHLBNY is pleased to now offer price incentives for advances executed before Noon each business day. These pricing incentives offer an opportunity to provide economic value to our members, while improving cash and liquidity management for the FHLBNY. For further details, kindly refer to the Bulletin.