Source: US Dept. of Treasury End of Day
• The two-year Treasury note declined 24 basis points in yield last week as weak economic data supports another 25-basis point ease by the Fed during their next meeting on October 30th. The two-year note is now yielding 1.40% which is 60 basis points under the upper end of the current fed funds range of 1.75% to 2.00%.
• The job market is cooling, echoing the slowing growth in the broader economy. But the jobs engine is still humming at a decent pace, even though not all cylinders are firing. In September, nonfarm payrolls increased by 136 thousand, a tad under expectations, but more than enough to accommodate the increase in the working-age population.
• The unemployment rate dropped to a fifty-year low of 3.5%. Nonetheless, a point for the Fed to consider is that the tightening job market is still not generating upward wage pressures, which would raise inflation alarms if policy were easing too aggressively in the eyes of investors. After staying above 3.0% in twelve of the past thirteen months, the annual growth in average hourly earnings fell back to 2.9% in September.
• From our lens, the Fed will view the slowing pace of job creation, stagnant wage growth, and other soft economic data as reasons to provide the economy with more of a buffer to withstand the headwinds from trade developments and weakening global growth. The fed funds futures market is now pricing in a 70% chance of another 25 basis point ease at the October 30th, FOMC meeting.
