Daily Market Color

Rates Fall as Chances of a Stimulus Package Dim

Rates fall as fiscal stimulus remains in doubt.  President Trump seemed to go back on some of his tweets from earlier this week, advocating for a lighter stimulus package that would focus solely on stimulus checks and the airline industry. House Speaker Nancy Pelosi quickly rejected that idea though, saying that Democrats will not agree to a standalone bill on stimulus checks or airlines without a guarantee that other stimulus items will also be addressed. Rates promptly fell on the news and are 2-3 basis points lower across the curve as a result, the 10-year Treasury yield currently trading at 0.76%.

September FOMC minutes show Fed was divided on application of its new policy framework.  The September meeting was the first since the Fed announced its new framework which allows inflation to run above its historical 2% target.  Until this is achieved in addition to it’s dual mandate, Fed officials voted to leave rates at their current near zero levels.  Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari dissented from this decision for opposing reasons.  Kaplan wanted weaker guidance while Kashkari advocated to keep rates at current levels until inflation reached 2% “on a sustained basis.”  The Fed clarified that “circumstances could arise in which the committee judged that it would be appropriate to change its guidance, particularly if risks emerged that could impede the attainment of its economic objectives.”  Despite the variety of opinions, the general consensus remained that the US economy is recovering faster that expected, with officials forecasting a lower unemployment rate.  The minutes state the officials made their economic predictions with the assumption of additional fiscal aid, adding “if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.”

 Initial jobless claims fell to 840,000 for the week ending October 3rd.  The number was higher than economists expected, falling only slightly below the prior week’s revised figure of 849,000.  In an attempt to limit unemployment fraud, California opted out of reporting last week’s figure, leaving their number unchanged at 260,000 from the week prior.  Economists believe that though this accounts for some of the change in weekly claims, the majority is driven by the recent rounds of permanent layoffs from larger companies.  The fall in claims dragged the four-week moving average down to 857,000.  The report comes on the back of the monthly jobs report from last week, which showed the unemployment rate fell to 7.9% from 8.4% the month before.

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