Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending July 18, 2025.

Economist Views

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Following a busy week of economic data, the markets will confront a lighter slate of mostly second-tier reports in the upcoming week. Naturally, the market will be on guard for any developments on the status of Federal Reserve and FOMC Chairman Powell. The past week’s data, in general, portrayed economic conditions to be relatively stable and resilient. The inflation report revealed that trends are still above the Fed’s target. Jobless claims numbers were steady from the week prior, and retail sales bounced back higher after two months of declines. Overall, given the backdrop, a “wait and see” approach from the Fed appears to be the near-term course. Indeed, the market now prices a virtually 0% chance of a cut at the upcoming July 30th FOMC meeting, and September has been pared back to ~50% of a 25-bps cut. The Fed is now in communications blackout mode through July 31st.

Leading Index: Following last month’s slightly lower May reading, economists expect a continued pullback to -0.20%.

Existing Home Sales: Forecasts call for 4mn in sales for June, approximately matching May’s –4.03mn and representing a decrease of .70% month-over-month. Affordability challenges remain a headwind in the housing sales space.

Initial and Continuing Jobless Claims:  Jobless claim data continues to be closely watched by economists as a potential early indicator of a weakening economy. Continuing Claims, while ticking slightly lower this past week, have been on a notable uptrend since spring and so will be closely assessed for clues to employment market conditions.

New Home Sales: The June estimate is forecasted at ~30K, or 4.3%, higher than the May figure.

Building Permits:  Market consensus is for June’s permits to be in line with the May figure of 1,393K.

Durable Goods:  The overall headline monthly orders figure for June is expected to significantly retreat from May, owing to the prior month’s hefty increase being heavily driven by transportation-related orders. Indeed, last month’s ex-transportation figure was +.5%, and this month’s forecast is for a flat reading.

Federal Reserve: The Fed will be in blackout mode through July 31st.

Key Market Trends

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CHART 1 UPPER LEFT 
Sources: US Bureau of Labor Statistics. This past week, the Consumer and Producer Price Indices (CPI and PPI) reports were released. The reports were generally in line with expectations, and, at least optically, they did not portray overly worrisome news. However, the CPI revealed a notable rising price trend in goods, likely a result of tariffs beginning to flow through to prices. Indeed, consumer durables rose .4% month-on-month after a prior-month .5% gain, thereby registering the biggest back-to-back monthly gain in three years. Appliances, furniture, toys, and sporting goods all contributed to the gain. Meanwhile, services and travel-related prices were on the steady-to-weaker side and thereby helped to prevent a larger increase in the overall inflation barometers. But at 2.7% year-on-year, the CPI remains above the Fed’s 2% goal. Potentially concerning on a going-forward basis is that an increasingly greater share of the CPI index is being estimated via imputed (using comparable items/inputs/outputs, other geographic areas, and judgment), as opposed to directly observed data points. As seen here in the light, blue-shaded areas, the proportion of data being imputed has increased over threefold since the start of 2025 and is possibly a result of declining bureau resources. With this information and context in hand, the Fed appears poised to maintain its current “wait and see” approach to economic trends and monetary policy.

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 higher and steeper than the week prior. While 2- and 3-year yields were up by ~5 bps, the 5- and 10-year yields were ~7 and 11 bps higher, respectively. With the week’s data seemingly supportive of a Fed “wait and see” mode, the market pared back its pricing of projected rate cuts. Meanwhile, headlines regarding Fed Chair Powell’s status generated a steepening impetus to the curve, owing to concerns about Fed independence, and led to the 30-year UST piercing the 5% level. At this juncture, markets appear to be shrugging off fresh tariff news, in an apparent view that tariffs will be diluted or delayed, and instead waiting for more definitive impacts on economic trends. As of late Thursday afternoon, the market prices end-2025 fed funds at 3.915%, or ~9.5 bps higher than a week ago. The market’s end-2026 forward is ~3.165%, or 4.5 bps higher than last week.

CHART 3 LOWER LEFT and CHART 4 LOWER RIGHT
Sources: Bloomberg. Given the past week’s market chatter and news coverage on the status of Fed Chair Powell, here we isolate a few past incidents of Fed rate moves and their impact on the 10-year UST yield. It can make sense to investigate the behavior of the 10-year UST, as it is a market benchmark that plays a significant role in the level of mortgage, bond, and loan rates and can thereby significantly impact economic trends. As seen in these companion charts, a Fed hike or cut does not necessarily beget higher or lower rates across the curve. When the Fed began a hiking cycle in June 2004, the 10-year UST was 4.68%, as seen in the left-side chart. A year later, it was in the 3.90s and finally moved higher to near 5% about two years later. The market apparently believed in the Fed’s inflation-fighting credibility during this period, and there was also strong foreign demand for USTs in this era; hence, Fed Chair Greenspan coined the term “conundrum” for the market pricing. As seen in the right-side chart and in a much less historical timeframe, the 10-year yield rose in the months after the Fed began cuts last year. With forecasts of rising federal deficits/debt/UST issuance and lower foreign demand for USTs than in the past, longer-term yields could be susceptible to higher term premiums if the Fed were to “jump the gun” on rate cuts. Hence, this perspective may serve as further reason for the Fed to stay the course for now.

FHLBNY Advance Rates Observations

Front-End Rates

• As of Thursday afternoon, short-end rates were mixed vs. a week ago. The 2-month-and-in sector was mostly unchanged, whereas the 3-month-and-out tenors were higher and steeper by 1 to 3 bps. The market’s paring back of Fed cut expectations was the main cause of the changes. Meanwhile, 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 has been raised via the budget bill signed on July 4th. Net T-bill supply has now turned decidedly positive as the Treasury rebuilds its General Account. This change should serve to reduce liquidity in the financial system. 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 at now more compelling yields.
• The market will focus on the week’s moderate slate of economic data.

Term Rates

• The longer-term curve, as of late Thursday and generally mirroring the moves in USTs and swaps, was higher and steeper than the week prior. The 2- to 4-year zone was higher by 4 to 5 bps, whereas the 5- to 10-year sector was higher by 7 to 10 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 20-year nominal and a 10-year TIPS auction. Note that UST auctions usually occur at 1pm and can occasionally spur volatility around that time. Please contact the Member Services Desk for further information on market dynamics, rate levels, or products.