75bp Hike Priced in for September FOMC Meeting

Rates rise after Loretta Mester voices her opinion on Fed’s path forward. Swap rates and Treasury yields rose across the curve, largely a result of Cleveland Fed President Loretta Mester’s early morning comments. Mester made it clear that she doesn’t expect a rates cut next year, adding that the Fed needs to raise its benchmark rate above 4% by early next year and maintain that level for some time to help cool inflation. The market is now pricing in for a likely 75 bp rate hike at the September FOMC meeting, causing a 9 bp increase in the 10-year yield to 3.193%. Equities continued to suffer, with S&P 500, Dow Jones, and NASDAQ all falling on the day.

U.S. private business hires significantly decreases MoM. Private U.S. companies increased headcount at a relatively slow pace in August, as there were 132,000 new hires this month, the fewest jobs added since early 2021. Employment health is a metric that the federal reserve will consider when contemplating September’s rate hike decision, with this data adding ammunition to the more conservative 50 bp hike. Elsewhere, Chicago PMI was at 52.2 in August, relatively unchanged from last month’s level of 52.1, the lowest level we have seen in almost 2 years.

Day ahead. Initial jobless claims and unit labor cost data will be released at 8:30 AM ET, which will be followed by S&P global manufacturing PMI data for the month of August at 10:00 AM ET. Atlanta Fed President Raphael Bostic will speak again tomorrow, this time at 3:30 PM ET.