Optimistic Powell Fuels Markets After Soft Economic Data

Rates plummet following weak services sector data. Rates grinded higher in the early morning before dropping 8 bps following lower than expected ISM Services Index data. The gauge of services sector activity dropped from 56.0 in October to 52.1 in November, the fifth straight month of expansion but well below the forecast of 55.7. Higher prices paid (58.2), lower employment (51.5), and fewer new orders (53.7) contributed to the decelerating expansion. The rate decline came to a halt in the afternoon following Chair Powell’s moderated discussion, where he highlighted optimism about the state of the economy and suggested that the Fed can be patient with rate cuts. Rates closed ~5 bps lower on the session across the curve.

Chair Powell is confident in the state of the economy and his relationship with Trump. Fed Chair Jerome Powell reiterated today that the economy is “in remarkably good shape,” which will allow the Fed to be “a little more cautious” with future policy decisions. He did not offer explicit comments about his outlook for the Fed’s upcoming December meeting, though Fed Funds futures have a 25 bp rate cut priced in as 78% likely. Meanwhile, Powell said that he is not worried about Trump potentially politicizing the Fed upon taking office, and he dismissed the idea that the Fed’s independent authority is at risk. He is also optimistic about his relationship with newly nominated Treasury Secretary Scott Bessent, saying he is “confident that I will have the same kind of relationship with him once he’s confirmed as I’ve had with other Treasury secretaries.”

Private hiring growth slows. ADP employment data released today showed that 156,000 private sector jobs were added in November, slightly below estimates. October’s results were also downwardly revised by 59,000 to 184,000. Manufacturing was the month’s worst performer, shedding 26,000 jobs, whereas the service sector saw net hiring across all categories. Despite notching the 4th lowest monthly results year-to-date, ADP hiring figures in this year have generally landed around pre-COVID levels. While ADP data doesn’t reliably predict government labor data results, today’s print could be viewed as another positive sign of orderly labor market stabilization within a growing economy.