Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending December 05, 2025.

Economist Views

The highlight of the upcoming week will be the December 10th FOMC meeting. While the probability of a 25-bps Fed cut fell to ~30% at one juncture in the last week of November, it subsequently rebounded higher and now hovers ~90%. In public comments, various Fed members had expressed concern about inflationary pressures, but others subsequently expressed firm comfort with another cut. Economic data has been overall mixed but appears to have revealed enough of a weak tone for another “risk management” rate ease. With the government shutdown over, some delayed data has been released, however, much of it has been stale and many reports are still to be scheduled/released. This situation makes economic assessments and the Fed’s decision more difficult, and the ongoing tug-of-war between employment and inflation forces should spur lively debate within the Fed and likely some dissents on the official outcome. Note that a fresh Summary of Economic Projections, aka “dot plot”, will be released along with the rate decision and statement.    

NFIB Small Business Optimism: The small business sector has revealed strains in recent reports, and so the report for November will provide an update on conditions and sentiment.

Job Openings & Labor Turnover Survey: The BLS will release data for September and October. While welcome, the data will clearly not be fully up-to-date.

Mortgage Applications:  Following a slight dip last week, applications appear unlikely to stage a major rebound, given the holiday period and relatively unchanged rate levels.

Employment Cost Index: The data for Q3 will provide a read on labor costs which may, in turn, provide guidance on labor market conditions and inflationary pressures.

FOMC Meeting: See comments elsewhere herein.

Initial & Continuing Jobless Claims: Given its up-to-date status, the report will provide welcome context on the labor market. While initial claims have run at relatively steady and non-worrisome levels, continuing claims have maintained a relatively elevated trend since summer and thereby indicate that workers are having a more difficult time finding new positions. This past week’s print, however, portrayed some moderation in continuing claims, and initial claims posted a 3-year low print of 191K.

Federal Reserve Bank Member Appearances:

• 12/12/2025 8:00  Fed's Paulson Speaks on Economic Outlook
• 12/12/2025 8:30  Fed's Hammack Speaks at Real Estate Roundtable Series

Key Market Trends

Sources: Bloomberg; ADP; Bureau of Labor Statistics (BLS). Here we can see evidence of the somewhat murky economic backdrop with which the Fed must contend in its upcoming decision. The latest ADP private payrolls data posted a net job loss of 32K and has fallen in four of the last six months. The small business sector drove the losses, with businesses of 50 or more employees posting moderate gains. November hiring was particularly weak in manufacturing, professional and business services, information, and construction; moreover, smaller businesses appear least able to manage tariff-induced pressures. Thursday morning’s release of the latest jobless claims figures, however, somewhat conflicted with the ADP report. Claims posted a decline to 191K from the prior week’s 216K and have sustained a relatively non-worrisome trend. Continuing claims even posted a slight dip from relatively elevated levels. To add to the fog on labor market conditions, Thursday’s release of the Challenger Job Cuts report revealed a 23.5% year-over-year increase. Note that the BLS jobs report for October will not be released, and the November report will be released on December 16th which is after the upcoming FOMC meeting. Given the mixed data and murky dynamics, the Fed appears poised to deliver another cut in the upcoming week.

Source: FHLBNY. Shown here is a comparison of current (Thursday afternoon) market pricing of forward rates vs. that at September’s FOMC meeting when the last dot plot and Summary of Economic Projections was released. The market has slightly pared back its pricing of projected rate cuts in the next two years. The market generally aligns with the dot plot for yearend-2027 as well as the “long run” dot of 3%. But the market prices for a quicker timeframe, namely end-2026, for reaching near 3%. The fresh dot plot should provide illumination on Fed members’ sentiment regarding further near-term rate cuts. If this week’s decision carries a heavy “risk management, wait-and-see” tone with multiple dissents in the case of a rate cut, then the market may react by pushing out the timeline on its pricing of cuts. Such a reaction, in turn, may bump 1-year-and-in rates a bit higher from prevailing levels.

Source: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve was minimally changed vs. two weeks ago, our last edition. Economic data has been mixed, and market movements have been muted. Indeed, implied volatility in options has resumed its descent to multi-year lows. The market eagerly awaits the FOMC meeting for further clarity and potential inspiration. As of Thursday afternoon, the market priced end-2025 Fed Funds at 3.66%, or 13 bps lower than two weeks ago and which equates to ~91% chance of another 25-bps rate cut at the upcoming FOMC. The market’s end-2026 forward is ~3.045%, or 5 bps higher than two weeks ago.

Sources: TreasuryDirect; FRB-NY. In the past two weeks we endured notable volatility in our short-end advance rates. Indeed, our Overnight rose by 33 bps from the 20th to the 28th of November but has subsided by 36 bps from that point as of December 4th. Dynamics in short-term financing markets and moves in SOFR were a major contributor to these changes. As shown here, SOFR (Orange, RHS, %) moved aggressively higher on T-bill and UST settlement dates which raised net new cash (Blue bars, LHS) for Treasury. After having set at 3.91% for November 20th, SOFR jumped to 4.12% on the 28th and December 1st. Subsequently, SOFR has fallen to the low 3.90’s, as these settlement dates have passed. In turn, our advance rates also notably subsided. The holiday week, meanwhile, sapped investor demand for short-end paper, and this dynamic also played a role in upward moves in our rates. But this dynamic turned this week, and short-end paper is trading at much tighter levels and thereby benefiting our advance rates. For further information on this topic, please read our next section on short-end rates and/or give us a call on the desk.

FHLBNY Advance Rates Observations

Front-End Rates

• As of midday Thursday and vs. our last edition two weeks ago, short-end rates were markedly lower. After some notable volatility, Overnight was 3 bps lower. Tenors 1-week-to-6-month, meanwhile, declined by 12 to 19 bps, with the shortest ones leading the move. Much of the change occurred in the last few days, as our paper traded at tighter levels post-holiday and maturity dates moved further into the timeline of the expected Fed rate cut. After a tumultuous month-end, pressures in the short-term financing markets eased as this week wore on, best evidenced in SOFR declining from elevated levels. Net T-bill issuance is projected to be negative this month, and the Fed has begun portfolio reinvestment into T-bills as of December 1st. Meanwhile, with the shutdown resolved, payments will go out from the Treasury General Account and thereby put funds back into the financial system. Lastly, Money Market Fund AUM remains near record high levels and has supported our paper. These dynamics should help alleviate short-end financing pressures and upward pressure on SOFR and our advance rates. The mid-month December 15th date deserves notice, however, as the corporate tax date in tandem with UST auction settlements that day may spur some financing pressure. And then potential yearend pressures loom a few weeks beyond that.
• The FOMC meeting will clearly be the highlight of the upcoming week.

Term Rates

• The longer-term curve, as of Thursday afternoon and generally mirroring the moves in USTs and swaps, was minimally changed vs. two weeks ago. The 1- and 2-year dipped by a few bps, as our funding levels improved in the past few days. Kindly refer to the previous section for color on market dynamics and changes.
• On the UST term supply front, the upcoming week serves a slate of 3/10/30-year auctions, settling December 15th, which will raise ~$79bn net new cash. 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.