Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending September 12, 2025.

Economist Views

Last week, we noted that the employment side of the Fed’s dual mandate appeared to currently hold a bit more sway within the Fed. Indeed, Fed Chair Powell noted that “downside risks to employment are rising” in his Jackson Hole Symposium address three weeks ago. Given this context, and inflation barometers still above the Fed’s 2% target, the likelihood of a Fed rate cut at the September 17th FOMC rested heavily on employment-related indicators. And the data released in the past week has essentially cemented a 25-bps Fed rate cut. In fact, the market currently prices a very slight chance of a 50-bps ease.

Last Friday’s jobs report for August was again weaker than expectations, reflecting a net loss in jobs for this past June. Further labor market-cooling information arrived in this past Tuesday’s preliminary downward revision of 911K to the April 2024-March 2025 payroll jobs-added estimates; this result translates to monthly payroll gains being 76K lower than the ~150K average gain initially reported over the span. Note that the monthly numbers are estimates based on partial surveys, so revisions become inevitable in gathering a more comprehensive picture of the labor market; indeed, this revision is preliminary and will be revised again by the Bureau of Labor Statistics. Thursday’s initial jobless claims figure, moreover, was the highest print since October 2021. Meanwhile, on the inflation side of the Fed’s dual mandate and its 2% target, the latest print of a 3.1% year-on-year increase in the August core-Consumer Price Inflation index is likely to contain this week’s rate cut to 25-bps.

Empire Manufacturing: The number is expected to reveal a pullback in New York State to 4.9 compared to the prior strong reading from August of 11.9.

Retail Sales: Retail Sales for August are forecasted to show a .30% rise compared to the prior release of .50% rise from July.

Industrial Production and Capacity Utilization:  Industrial Production for July is expected to reveal a flat reading month-over-month, while Capacity Utilization is expected to be at 77.40%, a 0.10% decrease from July and below its long-run average.

Housing Starts: Housing Starts rose in July by 5.2% to an annualized rate of 1.428mn, the most in five months. The consensus forecast for August is lower, expected at 1.375mn annualized.  Month-over-month starts in August, which would translate to a 3.70% dip compared to July.

Building Permits: The consensus forecast for August is 1,370K, a slight increase from the final July reading. That result would translate to a month-over-month increase of .60%.

Initial and Continuing Jobless Claims:  Initial Claims surged week-on-week this past week by 27K, the most since October 2021 and well above the market estimate of 235K. The 4-week moving average climbed to 240K. The Continuing Claims figure last week was 1,939K, below the estimate of 1,950K but still maintaining a more elevated trend relative to earlier in the year.

Federal Reserve Bank Appearances: None, as the Fed will be in blackout mode leading into the September 17th FOMC meeting. This meeting will also include the Fed’s latest Summary of Economic Projections on rates, growth, employment, and inflation. 

Key Market Trends

Sources: Federal Reserve Bank of New York; Bloomberg. In addition to the past week’s reports from the Bureau of Labor Statistics, other labor market indicators have also hinted at a softening backdrop. For instance, the Department of Labor’s July Job Openings and Labor Turnover Survey revealed last week that the job openings-to-unemployed-worker ratio had dipped to slightly below 1 for the first time since April 2021 and below pre-pandemic levels. Meanwhile, as charted here, this past week’s New York Fed Survey of Consumer Expectations found that the mean perceived probability (RHS, %) of finding a job in three months, if one’s current job was lost, fell markedly by 5.8 percentage points to 44.9%, the lowest reading since the inception of the survey series in June 2013.

Source: FHLBNY. Here is a midday-Thursday snapshot of the curve out to 3-year and the market’s pricing of prospective Fed rate cuts. Also shown are the Fed’s median rate projections from its July FOMC Summary of Economic Projections, aka “dot plot”. The past six weeks’ economic data, primarily on the employment side of the Fed’s dual mandate, has driven the market to price a swifter rate-cut cycle well below that of the Fed’s latest dots. A fresh dot plot will be released at this week’s meeting, and it could likely merge a bit closer to the market’s current pricing. Due to the two Fed Governors (Waller and Bowman) dissents at the Fed’s July “no change” decision, the fresh projections and/or dissents should prove to be an insightful guide to the Fed’s overall posture.

Source: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve was lower and flatter than it was a week ago. While the 2-year dipped by ~5 bps, the 10-year fell by ~14 bps. Weaker-than-expected data and more aggressive pricing of the Fed have led investors to add duration. As of Thursday afternoon, the market priced end-2025 Fed Funds at 3.615%, or 12 bps lower than a week ago. The market’s end-2026 forward is ~2.865%, or 3.5 bps lower than a week ago. The probability of a 25-bps cut on September 17th was at ~103.5% as of Thursday afternoon. All eyes and ears will be on the FOMC in the coming week.

Source: Bloomberg. In recent editions, we have noted somewhat of a rebound in mortgage banking and applications. Driving the rebound, as depicted here, has been a favorable drop in market rates and spreads. The 30-year Current Coupon (computed coupon of a par-priced MBS) spread to UST 5-year/10-year (Green, RHS-2, bps) has tightened by ~39 bps since late-April to trade last at ~124 bps. Low implied option volatility, along with healthier demand, has contributed to the tightening. In turn, the spread tightening has helped the Current Coupon (Gold, RHS-1, %) to fall to ~5.02% from ~5.90% in May. And these moves have spurred a decline in homebuyer 30-year mortgage rates (White, LHS, %) to ~6.27% from the 6.90-7% zone of earlier in the year. For those members unfamiliar, we encourage learning about the FHLB-NY Mortgage Asset Program (MAP) at https://www.fhlbny.com/business-lines/map-overview. This program serves as an alternative secondary market outlet for our members to fund mortgages and be competitive in offering fixed-rate mortgage loan products.

FHLBNY Advance Rates Observations

Front-End Rates

• As of Thursday midday, short-end rates were 8 to 14 bps lower than a week ago. Tenors not only moved further into the timeline of projected Fed rate cuts, but the market also priced for a more aggressive easing cycle in the past week. The Overnight advance declined by only 8 bps, as this tenor is highly susceptible to financing markets and moves in SOFR. Strong demand for short-end paper also helped our funding spreads, as Money Market AUM remains robust. Net T-bill issuance should moderate over the coming weeks, as the September 15th tax date infuses Treasury with funds. Also, the bulk of the heavy net issuance of the past few months is likely in the rearview mirror now that Treasury has significantly rebuilt its General Account. Monday’s tax date may spur some upward pressure on SOFR, owing to cash leaving the system and a net $78bn of UST settlements also falling on Monday. These dynamics, in turn, may influence our Overnight advance rate.
• The markets will eagerly await Wednesday’s FOMC decision.

Term Rates

• The longer-term curve, as of Thursday afternoon and generally mirroring the moves in USTs and swaps, was lower and flatter than a week ago. The 2-, 5-, and 10-year fell by 6, 7, and 15 bps, respectively. Kindly refer to the previous section for color on market dynamics and changes.
• On the UST term supply front, the upcoming week serves a 10-year TIPS and a nominal 20-year 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.