FED: Dallas's Logan Would Prefer Rate Hold Through Year-End
Dallas Fed President Logan, who is a 2026 FOMC voter and among the most hawkish members of the committee, implies in comments Friday that if she were a current voter she would have dissented against the decision to cut rates 25bp this week. And additionally she probably would not have supported a December cut either (in line with MNI's view that her September Dot Plot had no further 2025 cuts beyond September). She says:
- "I did not see a need to cut rates this week. And I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly."
- "The labor market remains balanced and cooling slowly. Inflation remains too high, taxing the budgets of businesses and families, and appears likely to exceed the FOMC’s 2% target for too much longer. This economic outlook didn’t call for cutting rates."
- "The risks to the labor market do lie mainly to the downside... The FOMC already mitigated downside risks by cutting rates at its previous meeting, in September. The remaining risks to employment are ones we can monitor closely and respond to if they are becoming more likely to materialize, not ones that currently warrant further preemptive action."
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STIR: Effective Fed Funds Rate
FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.09% (+0.00), volume: $92B
- Daily Overnight Bank Funding Rate: 4.09% (+0.00), volume: $155B
US DATA: ADP Shows Pay, Cyclical Sector Employment Deteriorating (2/2)
While we take the magnitude of the drop in September's ADP payrolls with a grain of salt given the rebenchmarking impact on the overall sequential change, the data showed widespread weakness across multiple sectors.
- Goods payrolls fell 3k for the first contraction in 4 months, with services down 28k, worst in 3 months and now marking a third drop in 4. Of 10 covered sectors, just three (natural resources +4k, info tech +3k, education and health +33k) were positive.
- The education and health gain was particularly interesting given a long streak of large underperformance vs the BLS series- it's now appearing to catch back up (see chart). But this is a non-cyclical sector so its recent improvement may flatter the broader perspective.
- Payrolls in leisure and hospitality a classic cyclical sector that was red hot during the pandemic reopening - were down for the first time since February 2024 (weakness that was echoed in the latest JOLTS data too), while construction employment is looking increasingly precarious with the first contraction since July 2021 in a sector beleaguered by weak activity.
- Large businesses continued to hire (+33k for companies with 500+ employees), but contractions were seen across the four categories of businesses sized smaller than that.
- The associated September Pay Insights also showed weakness outside of the raw number and it's unlikely to have been impacted by the numerical rebenchmarking. Job changers saw just 6.6% wage growth, joint-lowest since February 2021 (7.1% prior), led by "leisure and hospitality and financial activities", though for job stayers it ticked up 0.1pp to 4.5%.
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