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Next week’s data slate is a little quieter, with the September ISM Services release on Monday the highlight. Consensus sees a slight dip in the headline PMI (to 55.0 from 55.4) but an uptick in price paid and employment, which would be roughly consistent with the findings of regional Fed non-manufacturing surveys for the month.

• With data readings fairly scarce, more attention will be on Fed communications, including Gov Waller speaking on the economic outlook on Thursday, though there will also be some focus on Wednesday’s release of the September FOMC meeting minutes.
• Since the FOMC delivered what Chair Warsh called a “firm, unanimous decision” to raise rates at its September meeting, softer-than-expected PCE inflation data and nonfarm payroll gains appear to have reduced the urgency for a follow-up hike in October.
• But the minutes for the meeting will still be scrutinized for the degree of disagreement over how much tightening Committee members foresaw at that time, and how quickly it should come. The accompanying Dot Plot indicated that a little under half the Committee (8 of 18 Dot submissions) saw a further 50bp of tightening by next year, though there could be some useful indications in the minutes about whether risks to the base case for rates were seen as largely to the upside. At the press conference, Warsh described the 25bp hike as removing a “dose of accommodation” and said “I would be hard-pressed to describe broad financial conditions as restrictive”, noting that “this view was widely shared by the Committee". We will therefore be watching for any discussion of how broader financial conditions are playing into participants' thinking about the appropriate rate path (it's been mentioned by several speakers since then). And having mentioned it in the July meeting minutes, we may see whether the Committee reached any tentative conclusions about reducing the number of policy meetings in future years from 8 to 6.

We've published our US Macro Weekly - available here

• It was another volatile week for US interest rates, which concluded with diminished October Fed rate hike prospects as Fed speakers and key data points made the case for patience.
• September's employment report saw was weak on balance but is unlikely to shake the Fed’s current focus on inflation. It showed weak establishment data offset by a healthier household survey: nonfarm payrolls rose just 29k versus 90k consensus, with a 60k two-month downward revision, while hourly earnings growth slowed to 3.02% Y/Y, a fresh low since 2021.
• Meanwhile, unemployment ticked up to 4.2%, but the move was small on an unrounded basis and came with a surprise rise in participation.
• Core PCE's annual benchmark revisions were larger than expected, pulling the Y/Y rate down to 3.0% in August, concentrated mainly in portfolio management, computer software, and legal services methodology changes.
• Q2 GDP and private domestic demand were revised up more strongly, aided by AI-related capex, while August's Personal Income and Outlays report showed robust real spending and healthier savings rate dynamics post-revision.
• Elsewhere, consumer confidence slumped to its lowest since 2014 amid rising inflation expectations, ISM manufacturing saw prices paid jump to a five-month high, and mortgage applications hit an 18-month low as the 30-year mortgage rate climbed to its highest since late 2023.
• In Fedspeak, several permanent voters signaled reduced urgency for an October hike. NY Fed's Williams said there's "no need for urgency" given plans to await more data, while still penciling in one more 2026 hike. Vice Chair Jefferson similarly suggested the Committee may "take more time" to judge underlying trends, and Governor Bowman said she sees "no urgent need for further action."
• In some contrast, Governor Cook sounded relatively open to tightening further given inflation risks, while St. Louis’s Musalem argued for clearer communication of the Fed's policy framework.
• The week opened with around 37bp of hikes priced cumulatively through end-year, but finished with closer to 25bp. The drop had multiple catalysts, including Williams’s comment re “urgency”, soft payrolls/PCE data, and a global risk-off move Thursday.
• One shift worth noting is that October hike pricing finished at just ~5bp, vs 16bp at the start of the week.

MNI's monthly US Employment Insight is here

• Soft payrolls gains and wage growth in September’s employment report contrasted with a solid Household Survey (despite a slight uptick in the unemployment rate). On balance, the latest labor market data are unlikely to give Fed policymakers much reason to reconsider their outlooks, though it may further cool October hike talk.
• Nonfarm payrolls growth was clearly weaker than expected in September, rising just 29k (90k consensus), with a two-month downward revision of 60k. Private payrolls told a slightly better story, increasing 46k (81k consensus), although this was accompanied by a heavier 81k downward revision.
• The latest trends remain soft, with 3-month averages of 51k for NFPs and 54k for private payrolls.
• Hourly earnings were another soft patch, rising only 0.13% M/M and moderating to 3.02% Y/Y, a fresh low since 2021. Overall, the labor market continues to show little sign of driving inflationary pressures.
• The unemployment rate unexpectedly rose to 4.2%, but this should not move the needle.
• On an unrounded basis, the increase was relatively small, from 4.141% to 4.175%, and came alongside a surprise rise in participation to 61.8%. And the Household Survey was otherwise solid, with prime-age unemployment dipping and the U-6 rate down to a 19-month low. New entrants and re-entrants drove the increase in unemployment, while permanent job losers declined.
• Other indicators continue to point to a low-churn, low-fire, low-hire labor market. Job openings and the hires rate remain depressed by historical standards, Challenger hiring announcements were the lowest for a September since 2011, and announced seasonal hiring is muted. However, initial claims recorded a third consecutive sub-200k week, continuing claims fell to their lowest since March 2023, and job cut announcements continued their recent downward trend.