FED: Schmid Doesn’t See Rate Cut Supporting Labor Market In Dissent Statement
Oct-31 12:45
Kansas City Fed’s Schmid (’25 voter, hawk) has published his dissent statement having voted to keep rates on hold at Wednesday’s decision as opposed to the 25bp cut agreed by the FOMC.
- He doesn’t see an interest rate cut doing much to address stresses in the labor market that are likely arising primarily from structural changes in technology and demographics. It would instead keep feeding inflation pressures.
- "By my assessment, the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high. I view the stance of policy as only modestly restrictive. In this context, I judged it appropriate to maintain the policy rate at this week’s meeting."
- In the Kansas City Fed’s district, Schmid is hearing widespread concern over continued cost increases and inflation. "Rising healthcare costs and insurance premiums are top of mind”.
- "Inflation has been running above the Fed’s 2% objective for more than four years. As I have said before, I take small comfort in most measures of inflation expectations having not moved up. I view inflation expectations not as an input into Fed’s decisions, but as the outcome of the policy decisions that the Fed makes”.
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US DATA: ADP Rebenchmarking Aside, Weak Private Payrolls Trends Continue (1/2)
Oct-01 12:41
The ADP release for September was weak, showing the biggest private payrolls drop (-32k) since March 2023 and before that, Jun 2020. And the prior 54k was revised down to -3k, so the first back-to-back drops since the pandemic.
- This was a significant miss for private payrolls versus +51k expected. HOWEVER, this should be taken with caution since the ADP rebenchmarked in line with the BLS's QCEW rebenchmarking: "ADP conducted its annual preliminary rebenchmarking of the National Employment Report in September based on the full-year 2024 results of the Quarterly Census of Employment and Wages. This recalibration resulted in a reduction of 43,000 jobs in September compared to pre-benchmarked data. The trend was unchanged; job creation continued to lose momentum across most sectors."
- Months prior to August were not revised - so while the September ADP numbers would have "missed" even with 43k additional jobs, it wouldn't have been quite as bad.
- And the rebenchmarking does make September slightly hard to compare to recent months.
- That being said, the slowdown in payrolls growth continues, with the 3-month moving average of growth at 23k, and under 40k for 4 consecutive months now (ADP Chief Economist Nela Richardson: "Despite the strong economic growth we saw in the second quarter, this month's release further validates what we've been seeing in the labor market, that U.S. employers have been cautious with hiring."
- The ADP report is taking on outsized importance this month due to the very likely postponement of the Census Bureau's September Employment Report due to a federal government shutdown - there is no clean readthrough to what it means for private NFP payrolls consensus but we would expect a downward reconsideration from the 65k expected coming into this release.
STIR: Market Moves Towards Fully Pricing 2 Fed Cuts Through Year-End After ADP
Oct-01 12:31
Dovish adjustments in the U.S. short end following the much softer-than-expected ADP employment reading and negative revisions.
- The release has attracted greater-than-usual attention given the expected delay to the NFP report.
- Market has moved to price 25bp of easing for this month’s meeting, 47bp through December, 69bp through March and 89bp through June. That compares to 23bp, 43bp, 63bp and 83bp heading into the data.
- Note that our macro team has suggested the release should be taken with caution since the ADP series was re-benchmarked in line with the BLS's QCEW re-benchmarking, which resulted in a 43K reduction in jobs in September vs. pre-benchmarked data.
- Comments from House Speaker Johnson, pointing to hope for a breakthrough in government shutdown discussions at some point today, take the edge off the dovish move in more recent trade.
US TSY FUTURES: BLOCK: Dec'25 2Y Buy Post-Data
Oct-01 12:26
- +5,000 TUZ5 104-09.5, buy through 104-08.25 post time offer at 0818:45ET, DV01 $198,200.
- The 2Y contract trades 104-09.5 last (+3.25)
