All Eyes on the Fed Meeting

The interest rate markets were relatively flat this week as the markets digest the recent rate-friendly labor reports and tame inflation reports.Rates are remaining at 12-month lows and are now looking forward to next week’s Federal Reserve (Fed) meeting where they are almost certainly going to start to cut rates.

As of Friday, Fed Futures (a market that predicts future Fed actions) has a 94.7% likelihood of a .25% cut and a 5.3% likelihood of a .50% cut. That is a 0% likelihood of no rate cut. They will also be releasing another Summary of Economic Projections (SEP) which is very important to get a glimpse into the mind of the Fed decision makers on where they see the economy and rates in the future.  It is only released every other meeting.

BLS Jobs Report Pushes Rates Lower

Interest rates started the significant decline last week after the Bureau of Labor Statistics (BLS) Jobs report for August. As a result of the decline, mortgage refinance applications have jumped up as borrowers with high rates are excited to save some money. 

The BLS also released its Quarterly Census of Employment and Wagesreport for the 12 months ending March 2025. It shows that as compared to the monthly employment reports, the real job creation number should have been 911,000 less. That means each monthly report should have shown 76,000 less jobs. This release just adds fuel to the expectations of further rate cuts this year. 

The NY Fed’s Consumer Expectations Survey for August showed that the mean perceived probability of finding a job if you lost your job fell to 45%, the lowest reading since this report started to track this question in 2013.

PPI Inflation Falls Below Expectations

The Producer Price Index (PPI) wholesale inflation report came out quite tame despite tariff fears. The August headline inflation fell 0.1%, lower than the 0.3% expected. The prior month’s hot 0.9% reading was also revised lower to 0.7%. Annual inflation fell to 2.6%, much lower than the 3.3% expected. Core PPI, stripping out food and energy prices, fell 0.1% monthly and 2.8% annually.

CPI Inflation Hotter but Driven by Shelter

Unlike the PPI, Consumer Price Index (CPI) showed a slightly hotter inflation reading. The headline report showed a rise of 0.4%, slightly higher than expected. Annually, it rose to 2.9%, as expected. The Core CPI increased by 0.3% monthly and 3.1% annually, both as expected. It is important to remember that shelter accounted for 56% of the inflation last month. 

The component of Shelter that was the biggest mover is Owner’s Equivalent Rent. This is a complete guesswork component. Owners are asked how much they could rent their home for unfurnished and without utilities and then they are expected to know if this amount changed from the previous month. There aren’t many Real Estate professionals that could do this, let alone normal homeowners.

Jobless Claims Hit 4-Year High

Ordinarily, the hotter CPI report should have but a damper on rates. That didn’t happen since the weekly Jobless Claims number came in significantly worse than expected. Initial Filings for unemployment benefits rose 27,000 to 263,000, about 30,000 higher than expectations and the highest level in 4 years. Continuing Claims remained stable but around the highest level since 2021 at 1.94M.

Looking Ahead

Tuesday, September 16:

• Retail Sales

Wednesday, September 17:

• Fed Meeting and Rate Decision

Thursday, September 18:

• Initial and Continuing Jobless Claims