Hawkish Fed Sparks Selloff Ahead of September Employment Release  

Fed hawks spark selloff ahead of Friday’s nonfarm payrolls report. Swap rates and Treasury yields rose across the curve today following hawkish comments from Fed members. Charles Evans (dove, non-voter) said that the benchmark rate should rise to between 4.50-4.75% by next spring, consistent with current market forecasts of a peak at around 4.60%. Neel Kashkari then added that the Fed is far away from pausing rate hikes, while Loretta Mester reiterated the need for continued aggressive tightening. The comments sparked a selloff that moved rates 7-12bps higher across the curve in a bear-flattening pattern.

September jobs report expectations: nonfarm payroll growth to cool, unemployment rate holds steady. Nonfarm payrolls are expected to have increased by 255,000 in September, nearly 20% less than the prior month, while the unemployment rate is forecasted to remain at 3.7%. Slower job growth is expected as conditions tighten; however, the US labor markets have remained fairly robust during this hiking cycle. Wage growth is also expected to slow to 5.0% YoY, which would be welcomed by the Fed as they continue to try to control demand.

Day ahead. Tomorrow will be headlined by the nonfarm payrolls report for the month of September, which is released at 8:30 AM ET. New York Fed President John Williams (hawk, voter) is set to make public comments at 10:00 AM ET.