Fixed Income Update
Fears of stagflation weighed heavily on the bond market this week. Most Treasury yields are poised to decline for a fourth straight week, as incoming data reinforced expectations that the Federal Reserve will cut rates at its meeting next Wednesday.
The inflation picture remains sticky. Headline CPI rose 0.4% in August - slightly hotter than expected - bringing the annual pace up to 2.9%. Core CPI increased 0.3%, in line with expectations, also lifting its year-over-year rate to 2.9%. While inflation has not accelerated as much as feared in the wake of tariffs, it continues to run above the Fed’s 2% target.
At the same time, cracks are forming in the labor market. Weekly jobless claims jumped to 263,000 for the week ending September 6, the highest since October 2021 and a sharp increase from 236,000 the prior week. Adding to concerns, annual revisions showed that U.S. payrolls grew by 911,000 fewer jobs than initially reported. Together, these data suggest that not only is the labor market weaker than previously thought, but it may also be deteriorating at a faster pace.
Against this backdrop, markets are convinced the Fed will prioritize supporting employment over fighting inflation. Futures now fully price in a 25bp cut next week, with debate centering on whether policymakers could move more aggressively with a 50bp cut. Looking further ahead, the market expects three cuts before year-end and as many as five by next summer.
We believe the Fed will opt for a measured approach. Last year’s decision to deliver an outsized 50bp cut proved unnecessary, and policymakers will likely avoid repeating that mistake. Inflation, though moderating, remains elevated, and risks persist that price pressures could reaccelerate into year-end amid holiday spending or into 2026 as companies pass along previously absorbed tariff-related costs.
Next week’s FOMC meeting will be the key event for markets. After holding rates steady for five consecutive meetings, the Fed is expected to lower its policy rate by 25bp, bringing the range to 4.00–4.25%, the lowest since November 2022. We will be watching closely for changes in the Fed’s economic assessment and any dissenting votes in favor of a larger cut.
As of September 12, 2025
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.60% |
2.73% |
-.13% |
3.20% |
-.60% |
|
Taxable MMF |
4.29% |
4.29% |
.00% |
5.28% |
-.99% |
|
2-Year Treasury |
3.56% |
3.51% |
.05% |
3.64% |
-.09% |
|
5-Year Treasury |
3.62% |
3.58% |
.04% |
3.47% |
.16% |
|
10-Year Treasury |
4.06% |
4.08% |
-.02% |
3.68% |
.39% |
|
30-Year Treasury |
4.68% |
4.76% |
-.08% |
3.99% |
.69% |
|
5-Year Exp. Inflation |
2.46% |
2.46% |
.00% |
1.95% |
.51% |
|
2-Year Corporate* |
3.89% |
3.89% |
-.01% |
4.15% |
-.26% |
|
5-Year Corporate* |
4.11% |
4.14% |
-.03% |
4.11% |
.00% |
|
10-Year Corporate* |
4.72% |
4.81% |
-.09% |
4.58% |
.14% |
|
30-Year Corporate* |
5.42% |
5.56% |
-.14% |
5.04% |
.38% |
|
2-Year Municipal** |
2.16% |
2.24% |
-.08% |
2.44% |
-.27% |
|
5-Year Municipal** |
2.34% |
2.39% |
-.06% |
2.44% |
-.11% |
|
10-Year Municipal** |
3.13% |
3.23% |
-.10% |
2.78% |
.34% |
|
30-Year Municipal** |
4.47% |
4.76% |
-.29% |
3.78% |
.69% |
|
10-Year German Govt Bond |
2.71% |
2.66% |
.05% |
2.15% |
.56% |
|
10-Year U.K. Govt Bond |
4.67% |
4.64% |
.03% |
3.78% |
.89% |
|
10-Year Japanese Govt Bond |
1.58% |
1.57% |
.02% |
.85% |
.73% |
|
10-Year Spanish Govt Bond |
3.28% |
3.25% |
.03% |
2.95% |
.33% |
|
10-Year Italian Govt Bond |
3.52% |
3.50% |
.02% |
3.54% |
-.02% |
|
Fed Funds |
4.50% |
4.50% |
.00% |
5.50% |
-1.00% |
|
Prime Rate |
7.50% |
7.50% |
.00% |
8.50% |
-1.00% |
|
Dollar*** |
$97.61 |
$97.77 |
-$0.16 |
$101.37 |
-$3.76 |
|
CRB |
$300.32 |
$297.77 |
$2.55 |
$272.99 |
$27.33 |
|
Gold |
$3,657.70 |
$3,624.00 |
$33.70 |
$2,557.10 |
$1,100.60 |
|
Crude Oil |
$62.57 |
$61.87 |
$0.70 |
$68.97 |
-$6.40 |
|
Unleaded Gasoline**** |
$1.99 |
$1.96 |
$0.02 |
$1.88 |
$0.11 |
Note: Municipal yields are as of the previous business day.
* 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
Stocks rallied nicely this week and the S&P 500 and Nasdaq Composite set new all-time-high closes on Thursday, extending Wednesday’s record closes. Much of this move higher was fueled by an increase in expectations for the Federal Reserve (Fed) to lower interest rates next week at its Federal Open Market Committee (FOMC) meeting. The rise in expectations was a by-product of fresh inflation and labor market data:
August Core PPI Cooler Than Expected. On Wednesday, data showed that the August core Producer Price Index (PPI) was down 0.1% month/month, a surprise decline in comparison to the expected 0.3% increase. July core PPI was also revised down to 0.7%. Annualized core PPI of 2.8% was notably below the 3.5% consensus estimate. Tariff-linked categories were mixed and some questioned whether PPI might have declined because higher tariff-related costs had been passed on to consumers.
August Core CPI In Line. Thursday brought news that the August core Consumer Price Index (CPI) increased 0.3% month/month, in line with forecasts and the prior month’s level. Annualized core CPI of 3.1% was also in-line with consensus. The data showed that shelter costs rose by 0.4% and were a primary upside driver. Similar to Wednesday’s PPI report, tariff-linked categories were mixed -- but more muted than expected. This quashed the notion for now that higher tariff costs are being passed on to consumers in a significant way.
BLS Annual Payrolls Benchmark Revised Down. The Bureau of Labor Statistics (BLS) released its annual revision to non-farm payrolls for the period of April 2024 to March 2025. Job creation for this period was revised down by a breathtaking 911,000 and was a much larger downward revision than expected.
Weekly Initial Jobless Claims Rise. Weekly initial jobless claims came in at 263,000, notably higher than expected and ahead of the prior week’s 236,000. Of note, this was the highest level since October 2021.
The equity market’s read on this data was that inflation is holding steady and tariff-related pressures are not showing up with as much intensity as has been feared (for now, at least). But in the meantime, there were fresh signs this week that the labor market may be softening. This data comes on the heels of last week’s surprisingly large disappointment that in August a meager 22,000 jobs were created (versus an expected 75,000 gain, while the net revision to June and July was -22,000). As such, anticipation rose during the week that this new information will influence the “data dependent Fed” to lower interest rates during next week’s FOMC meeting -- amid growing signs of labor market weakening. The market is now pricing in nearly a 0.75% reduction in rates this year. The question is not whether the Fed lowers rates next week but: will the reduction be 0.25% or 0.50%? Wednesday will provide the answer.
As of September 11, 2025
|
Index |
Current Week |
Month of Sep. |
YTD |
|
Dow Jones Industrial Avg. |
1.57% |
1.31% |
9.73% |
|
S&P 500 |
1.65% |
2.03% |
13.03% |
|
Nasdaq |
1.59% |
2.77% |
14.68% |
|
MSCI EAFE |
1.13% |
1.39% |
25.02% |
|
Russell Mid Cap |
1.22% |
1.54% |
11.14% |
|
Russell 2000 |
1.29% |
2.37% |
9.60% |
