Today’s scheduled release of the monthly “Jobs Jobs Jobs” report has been delayed due to the government shutdown. Private sector data indicates continued weakness:  Wednesday’s ADP report indicated the biggest decline in private payrolls in 2 ½ years in September (minus 32,000), and today’s report from Challenger, Gray (a placement firm) showed employers have announced plans to add 205,000 jobs so far in 2025, which is down 58% from 2024 and the lowest since 2009. Recent comments from Fed Chair Powell describe the situation as a “low fire, low hire” stagnant labor market.

With the Fed’s recent focus shifting from inflation to employment, the futures market is now predicting a 90% probability of two quarter-point cuts this year (at the October and December meetings). That would put the floating rate at 3.60%. Fixed Rates: Treasuries continue to trade in a tight range with the 10-year at 4.11%. Of course, Fed rate cuts do not always result in lower Treasury rates. The two major indices: 10-year Treasury and 30-Day SOFR, have converged lately at about 4.10%. See futures chart below indicating potential “divergence”: Treasury yields may rise on the usual factors (budget deficits, supply, currency fluctuations, etc.), while floating rates drop on Fed cuts.  

Speaking of the Fed, the newest policy maker, Fed Gov. Miran, staked out some extremely dovish territory in his first policy address since his appointment. He stated that the neutral rate of interest (assumed to be about 3% by most Fed officials) has been driven lower, into the low 2% range, and that present rates are “well into restrictive territory.”  Miran states that “short-term rates are roughly 2 percentage points too tight,” which puts his neutral rate at about 2.0-2.5%. He advocated for a 50 bp cut at the last meeting and a total of 150 bp cuts this year. Other Fed officials are more cautious. Cleveland Fed President Hammack notes that inflation is still too high and advocates caution on cuts to avoid overheating the economy; she describes policy as only “mildly restrictive.” With the Fed seemingly in a rate-cutting cycle while inflation remains stubbornly in the 3% range, the long stated 2% inflation goal is seemingly being “relaxed.” Fed Gov. Miran has thoughts on this:  he is supportive of doing away with the 2% inflation goal. Comments from some “centrist” Fed officials urge “caution” with easing rates while prices are running above the 2% target.

Wild card: an extended government shutdown could further exacerbate a slowdown as paychecks are missed and potential layoffs pile up, while critical data is unavailable. Stay tuned…

By David R. Pascale, Jr., Senior Director