Fixed Income Update
Treasury yields moved modestly higher this week, as Fed commentary and incoming economic data gave markets a clearer read on the likely path of interest rate policy.
If the FOMC is inclined to raise rates on September 16th, this week’s employment data does little to get in the way. August nonfarm payrolls rose by 162k, handily above the 55k expected and the strongest monthly gain since March. The three-month average also improved, rising from 38k to 71k in August, its strongest pace since June. With the employment side of the Fed’s dual mandate showing no signs of concerning weakness, and wage data still not pointing to building wage inflation, policymakers can likely keep that half of the mandate on the back burner for now.
Unsurprisingly, that leaves inflation as the continued focus for policymakers. In perhaps the most noteworthy comments of the week, Governor Chris Waller told the press on Thursday, “If there is continued progress toward our 2% inflation goal, then I am willing to support holding the policy rate at its current level, but if inflation comes in hot, I would consider a hike.” Governor Michael Barr and New York Fed President John Williams struck similar tones earlier in the week, with Barr adding, “If inflation appears not to be moderating sufficiently, I think we should act decisively to raise rates.” The comments come just a week after Chair Warsh’s decisively hawkish remarks at Jackson Hole, and during a week when continued U.S.-Iran military exchanges lifted bond yields and pushed energy prices even higher. According to AAA, gasoline prices have risen from $4.01 on August 10 to $4.15 today, while diesel prices climbed further to a record high of $5.85 this morning.
With that in mind, next Friday’s CPI report takes on added importance. One data point will not ,and should not, determine the Fed’s next move, but policymakers’ message has been clear: inflation has been too high for too long, and the data needs to show continued progress. Energy prices are expected to rise in next week’s CPI release, meaning further easing in other categories, particularly core services, will likely be needed for the report to show the improvement Fed officials are looking for. Futures markets are currently pricing in about a 60% chance that the Fed raises rates on September 16th.
As of September 04, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.31% |
2.30% |
.01% |
2.76% |
-.45% |
|
Taxable MMF |
3.68% |
3.68% |
.00% |
4.28% |
-.60% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.37% |
4.35% |
.02% |
3.59% |
.78% |
|
5-Year Treasury |
4.53% |
4.48% |
.05% |
3.65% |
.89% |
|
10-Year Treasury |
4.77% |
4.72% |
.05% |
4.16% |
.61% |
|
30-Year Treasury |
5.23% |
5.21% |
.02% |
4.85% |
.38% |
|
5-Year Exp. Inflation |
2.37% |
2.32% |
.04% |
2.47% |
-.11% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.63% |
2.59% |
.04% |
2.37% |
.26% |
|
5-Year Municipal** |
3.05% |
2.95% |
.10% |
2.53% |
.52% |
|
10-Year Municipal** |
3.63% |
3.49% |
.14% |
3.35% |
.28% |
|
30-Year Municipal** |
4.91% |
4.72% |
.19% |
4.86% |
.05% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$99.18 |
$99.70 |
-$0.52 |
$98.35 |
$0.83 |
|
CRB |
$416.70 |
$406.36 |
$10.34 |
$300.35 |
$116.35 |
|
Gold |
$4,435.20 |
$4,494.70 |
-$59.50 |
$3,577.30 |
$857.90 |
|
Crude Oil |
$89.23 |
$83.40 |
$5.83 |
$63.48 |
$25.75 |
|
Unleaded Gasoline**** |
$3.13 |
$3.05 |
$0.08 |
$1.85 |
$1.27 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
US equities bounced around this week as investors considered renewed geopolitical risk, higher energy prices, rising bond yields, and shifting expectations for Federal Reserve (Fed) policy. Early-week strikes between the US and Iran lifted crude prices, pressed inflation concerns, and pushed Treasury yields higher. A Thursday market rally, supported by dovish comments from Fed Governor Chris Waller, put major US indices on track for weekly gains. However, stronger-than-expected labor market data on Friday lifted market expectations for a September Fed rate hike and left the major indices little changed heading into the weekend.
Early in the week the US-Iran conflict showed signs of escalation as the two sides exchanged strikes. The renewed hostilities pushed West Texas Intermediate crude higher, trading close to $91/barrel Friday morning. Higher oil prices, and the subsequent uptick in inflation worries, helped to drive the 10-year US Treasury yield to its highest level in nearly three years. Looking beyond simply the price of crude, US diesel prices reached an all-time high this week, with the national average at $5.85/gallon. Sustained upward pressure on the price of diesel could weigh on several segments of the US economy, including transportation, industrial, and consumer companies. Although tanker traffic through the Strait of Hormuz has improved in recent weeks, volumes remain below pre-war levels; refining volumes remain challenged. As a result, energy prices are again influencing the inflation narrative and, by extension, the market’s expectations for the Fed’s rate path.
Fed rate expectations fluctuated this week. Thursday’s 1%+ gains across major US indices followed Waller’s comments that he would be “inclined to support” holding rates steady this month if inflation continues to improve. Waller’s comments led to a lower implied probability of a September rate hike. That changed on Friday after August’s Nonfarm Payrolls increased by 162,000, well above the 65,000-consensus estimate. The CME FedWatch Tool showed a 60.4% probability of a September rate increase as of Friday morning, up from 49.4% the prior day. While Friday’s stronger jobs report may complicate policy outlook, inflation remains the key variable for Fed Chair Kevin Warsh. As such, next week’s August Consumer Price Index (CPI) print could prove influential in determining whether we see a Fed rate hold or rate hike at its September meeting.
Despite this week’s muted equity performance, major US indices managed to post positive returns in a somewhat choppy month of August. The Nasdaq Composite and S&P 500 Index rose 4.0% and 2.7%, respectively, buoyed by Information Technology names, with the sector advancing more than 6%. Looking ahead to next week, investors will be keyed in on Friday’s CPI report in the holiday-shortened week. Earnings growth has been an important support for US equities, but with reporting season winding down, macro data and Fed policy are more likely to be near-term directional drivers.
As of September 03, 2026
|
Index |
Current Week |
Month of Sep. |
YTD |
|
Dow Jones Industrial Avg. |
0.34% |
1.05% |
12.96% |
|
S&P 500 |
0.49% |
0.82% |
14.06% |
|
Nasdaq |
0.70% |
0.82% |
14.83% |
|
MSCI EAFE |
-0.17% |
0.24% |
14.51% |
|
Russell Mid Cap |
-0.07% |
0.44% |
17.22% |
|
Russell 2000 |
-0.11% |
0.42% |
20.52% |
