Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending October 10, 2025.

Economist Views

The past week was relatively light on economic data, and the ongoing federal government shutdown has prevented multiple reports from being released. The markets thus far have remained calm in response to the shutdown and await further news on a resolution. The lack of data has led to lower volumes and low volatility. The yield curve still prices a near-certain 25-bps cut by the Fed on October 29th, as labor market-related data has portrayed a decidedly less dynamic state, plus the shutdown may impair near-term economic conditions. From the Fed’s perspective, the shutdown comes at an inopportune time, given that the October 29th FOMC decision is “live”, and so the Fed would ideally want fresh data. The past week’s jobless claims were again unreleased, thereby leaving only private tier-2 reports in the past two weeks, which mostly corresponded with a less fluid jobs market and may improve the odds of another rate cut this month. 

The upcoming holiday-shortened week contains a few tier-1 reports, especially the Consumer Price Index (CPI) data. However, absent a resolution to the government shutdown, the data will be delayed until further notice. 

Empire Manufacturing:  September’s survey reflected a reading of -8.70, the lowest reading in three months. A slight improvement is expected for the fresh reading.

Consumer Price Index:  Subject to delay - CPI for September is expected to again post a month-over-month reading of .40%. The year-over-year reading is forecast to tick .2% higher to 3.1%.

Retail Sales:  Subject to delay - Sales are projected to reveal a slight pullback to .40% from the .60% reading in August.

Producer Prices:  Subject to delay - PPI for September is projected to portray a month-over-month increase in wholesale prices of .3% following August’s .1% decrease.

Initial and Continuing Jobless Claims: Subject to delay - Data this past week was delayed.

Federal Reserve Bank Appearances:

• 10/10/2025 13:00  Fed's Musalem Speaking at Springfield Area Chamber of Commerce
• 10/13/2025 12:10  Fed's Paulson Speaks at NABE
• 10/14/2025 8:45  Fed's Bowman in Moderated Conversation at IIF
• 10/14/2025 11:30  Fed's Powell Speaks at NABE Event
• 10/14/2025 15:25  Fed's Waller on Payments Panel at IIF
• 10/14/2025 15:30  Fed's Collins Speaks to the Greater Boston Chamber of Commerce
• 10/15/2025 12:30  Fed's Miran at Nomura Research Forum
• 10/15/2025 14:00  Fed Releases Beige Book – Summary of Commentary on Current Economic Conditions by District
• 10/16/2025 9:00  Fed's Waller Speaks at Council on Foreign Relations
• 10/17/2025 12:15  Fed's Musalem in Fireside Chat at IIF

Key Market Trends

Sources: Bloomberg; NY Federal Reserve. In this past Wednesday’s release of the September FOMC Meeting Minutes, Fed members, despite having just cut their policy rate, “continued to view the risks around the inflation forecast as skewed to the upside, as the projected rise in inflation this year could prove to be more persistent than assumed in the baseline projection”. Also released this past week and providing some justification for this ongoing inflation concern, the latest NY Fed Survey of Consumer Expectations revealed a rise in median consumer inflation expectations (RHS, %) from August to September. The 1-year horizon rose from 3.2 to 3.4%, the 3-year from 3 to 3.05%, and the 5-year from 2.90 to ~3%, all above the Fed’s desired 2% target. Also shown, for comparison, are the market’s inflation swap rates (RHS,%) for 1, 3, and 5-year; while not as high and not in “fear territory,” the market measures are also above the Fed’s target and reflect a gradually slowing inflation trend after a year. Meanwhile, gold, considered an inflation hedge, has been setting fresh record highs. The NY Fed Survey, considered a “soft” data point, is unlikely to dissuade the Fed from another rate cut later this month. However, the Fed would surely prefer to assess the upcoming week’s CPI report before its decision, and, unfortunately, that report appears likely to be delayed at this juncture.

Source: Bloomberg. The trajectory of the Fed’s balance sheet was also discussed at the September FOMC. The Fed has continued its portfolio runoff of UST and Agency and Agency MBS debt, a process that reverses the “Quantitative Easing” of earlier this decade and which essentially removes funds from the financial system. At a certain point, this process may spur indigestion in the short-term money and financing markets. Shown here is the trend of bank reserves as a percentage of total assets (RHS, %). Market strategists generally regard the 13% level or above as “abundant” and the 10% level as “sub-ample” territory. Note how repo rates (LHS, %) spiked in September 2019 when this ratio was below 10%. While today’s level can be considered ample, the current pace of portfolio runoff will lead reserves lower in the months ahead. Indeed, the FOMC Minutes noted that reserves should reach close to $2.8trn, or ~11% or below of total assets, by the end of Q1 2026. For this reason, along with currently elevated SOFR levels from heavy UST and T-bill issuance, strategists look for the Fed to end the portfolio runoff sometime in the next six months to avoid market disruptions.

Source: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve rose by 4 to 7 bps from the week prior. With a dearth of economic data, yields have been mired in a relatively tight range. This situation may portend higher volatility ahead, if/when the delayed reports are eventually released. As of Thursday afternoon, the market priced end-2025 Fed Funds at 3.655%, or 2.5 bps higher than a week ago, which equates to ~1.75 25-bps rate cuts before yearend. The market’s end-2026 forward is ~3.02%, or 6 bps higher than a week ago. The chance of a cut on October 29th is at ~88%, down marginally from 92% last week.  

Source: S&P Global Market Intelligence. The past week’s Comerica-Fifth Third Bank merger announcement was not an anomaly. Indeed, as seen here and with 52 deals announced (RHS), M&A activity surged in Q3 to a 4-year high. It marked the highest quarterly number of deals since the 59 of Q3 2021. The Q3 aggregate deal value (LHS, $bn) of $16.63bn, moreover, was also the highest since Q4 2021’s $25.26bn, according to S&P’s data. For context, the notable Comerica-Fifth Third deal to start Q4 was valued at $10.9bn.

FHLBNY Advance Rates Observations

Front-End Rates

• As of midday Thursday, short-end rates were mostly lower by a bp or two vs. the week prior, as tenors moved further into the timeline of the Fed’s projected rate cut on October 29th. Overnight fell by 4 bps, as dynamics in the financing markets related to quarter-end and UST auction settlements faded, thereby allowing SOFR to edge lower vs. a week ago. Net T-bill issuance has moderated from summer levels, but the Treasury this past week announced a surprise increase in next week’s auction amounts. Therefore, the prevailing and relatively elevated SOFR-to-Fed Funds spread appears likely to persist in the near-term. Continuing to provide steady demand for our paper, meanwhile, has been robust with Money Market Fund AUM, which has grown organically via reinvested coupons.
• The week ahead contains tier-1 data, but the reports appear likely to be government shutdown-delayed. The markets will be on guard for announcements regarding a shutdown resolution and eventual release of delayed reports.          

Term Rates

• The longer-term curve, as of Thursday afternoon and generally mirroring the moves in USTs and swaps, was 5 to 6 bps higher than a week ago. Kindly refer to the previous section for color on market dynamics and changes. 
• On the UST term supply front, the upcoming week serves as a reprieve from 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.