Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending September 5, 2025.

Economist Views

With the outcome of the next FOMC meeting on the 17th of this month, the upcoming week will provide a “last look” of sorts at inflation indicators, as both the Producer and Consumer Price Indices (PPI and CPI) will be released. Barring any major upside surprise, the market is likely to continue to strongly expect a 25-bps cut from the Fed. Indeed, the employment side of the Fed’s dual mandate appears to currently hold a bit more sway within the Fed. During his speech at the Jackson Hole Symposium a few weeks ago, Fed Chair Powell noted that “downside risks to employment are rising”. Given this statement, and inflation barometers still above the Fed’s 2% target, the likelihood of a Fed rate cut at this month’s FOMC rests heavily on employment-related indicators. The labor market-related data released this past week mostly portrayed a cooling environment. In this regard, the employment situation report to be released on Friday morning just before this publication hits inboxes will be a key data point to either solidify a Fed rate cut at the upcoming meeting or place some doubt on it. The market consensus calls for +75K on payrolls and a 4.3% unemployment rate. Please contact the Member Services Desk for any updates on market dynamics or rate levels.

NFIB Small Business Optimism: The July figure was noticeably strong for the index and slightly above the 52-year average. Respondents reported positive expectations on business conditions and expansion opportunities. In contrast to the Optimism index, the Uncertainty Index component increased by 8 points from June to 97, with labor quality cited as the single most important problem.

PPI Final Demand MoM: Producer Prices are expected to show a rise of .3% in August, with the same .3% rise when stripping out the volatile food and energy components. 

PPI Final Demand YoY: For the YoY view, the consensus estimate is an increase to 3.6%.

CPI MoM: The CPI estimate is expected to reveal a .3% rise in August vs. July. The core figure, excluding food and energy, is also expected to rise by .3%. 

CPI YoY:  The YoY projection is a rise of 2.9%, an increase over the 2.7% rise from July.

Initial & Continuing Jobless Claims:  Initial claims this past week posted at 237K, a rise of 7K from the week prior, while continuing claims posted a 14K decrease to 1940K. The past week’s 237K initial claims were the highest since the third week of June. Claims will continue to be watched closely by economists and the market for signs of a cooling labor market.  

University of Michigan Sentiment: The preliminary September data will be released for this survey. The Fed will likely monitor consumers’ short and long-run inflation expectations, but, as mentioned above, the condition of labor markets appears to be taking precedence for now on the timing of a rate cut. 

Federal Reserve Bank Appearances: None, as the Fed will be in blackout mode leading into the September 17th FOMC outcome. 

Key Market Trends

Sources: Federal Reserve Bank of Atlanta; Bloomberg. As seen here and which could be a potential sign of a cooling jobs market, wage growth (RHS, %) for job-stayers trended above that of job-switchers for a sixth straight month through July, thereby matching the longest such stretch since after the Great Recession in the late 2000s. Since workers will typically change jobs to obtain a pay raise, this shift indicates softening demand for labor and that hiring firms may be in a more cautious holding-pattern mode. This mode may also apply to job-stayers who currently value stability over risk and so are less apt to switch jobs. 

Sources: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve was lower and steeper from our last edition two weeks ago. The 1- to 7-year sector was ~20 bps lower, and the 10-year ~16 bps lower. The 30-year dipped by a less notable 5 bps. The bulk of the move occurred two weeks ago in the aftermath of the Jackson Hole Symposium and the market’s takeaway that Fed rate cuts will commence this month. As of Thursday afternoon, the market priced end-2025 Fed Funds at 3.735%, or 12.5 bps lower than two weeks ago. The market’s end-2026 forward is ~2.90%, or 17 bps lower than two weeks ago. The probability of a 25-bps cut on September 17th was at ~95% as of Thursday afternoon. 

Sources: eMBS; Goldman Sachs Global Investment Research. In an edition last month, we pointed out that the mortgage refinancing market appears to have risen from the dead. As can be seen here in this chart of the percentage of borrowers with a 50+ bps refi incentive, and although nowhere near levels of prior years, the percentage has at least rebounded to ~6% from rock-bottom levels of recent years. As time has passed, more of the mortgage market has reset to the higher prevailing rates, relative to the super-low rates of 2020-21, of the past few years. Meanwhile, mortgage rates have declined ~50 bps from levels of this past January. These dynamics have served to provide at least a small boost to potential refi activity.

Sources: Federal Reserve H.4.1; JP Morgan. The September 15th corporate tax date looms closer and typically drains on average ~$145bn of reserves from the financial system, as shown here in the cumulative change in total reserve balances (LHS, $bn) around the September corporate tax day over the last twelve years. Note that the upcoming week’s UST 3/10/30-year auctions, totaling $119bn, each settle on the 15th. These events could spur some bank deposit drainage into the date and some upward short-term financing rate pressures around the date, which could, in turn, affect our rates. On the bright side, however, Money Market Fund AUM continues to trend near or at record new levels and should help contain any severe impacts.

FHLBNY Advance Rates Observations

Front-End Rates

• As of Thursday midday, short-end rates were mostly lower from two weeks ago, except for tenors 2-week-and-in, which were unchanged in 2-week but up by 5 and 10 bps, respectively, in 1-week and overnight. Higher SOFR levels around month-end, in addition to higher net T-bill issuance and wider funding spreads, served as the catalyst in that space. The 1-month-and-out sector, meanwhile, declined by 6 to 9 bps, led by the 6-month. The market’s more aggressive pricing of potential Fed rate cuts served to drive this downward move. Net T-bill supply continues at an aggressively positive pace, as Treasury rebuilds its General Account. A larger proportion of the fresh issuance has been front-loaded in the shorter 4- to 8-week maturity sector, and the net issuance is expected to remain positive through end-September. Robust Money Market Fund AUM, however, has helped to absorb the supply and thereby also contain severe impacts on our paper.
• With the Fed in blackout mode, the markets will closely monitor economic data for hints to the course of Fed action.

Term Rates

• The longer-term curve, as of Thursday afternoon and generally mirroring the moves in USTs and swaps, was lower and steeper from two weeks ago. While the 2- to 5-year sector declined by ~20 bps, the 10-year dropped by ~15 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. 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.