FED: US TSY 19Y-10M BOND AUCTION: NON-COMP BIDS $66 MLN FROM $13.000 BLN TOTAL

Cleveland Fed President Hammack (hawk, 2026 FOMC voter) sounds extremely cautious about making further cuts: "I am laser focused on inflation. And that's why to me, I think that we should be very cautious in removing monetary policy restriction, because I think it's important that we stay restrictive to bring inflation back down to target." She says she she has "one of the highest estimates" of the neutral rate on the Committee, and thinks policy is only "very mildly restrictive after last week's move", so a "very short distance to neutral".

• "I do have more concerns right now that if we remove that restriction too quickly, yes, it may help on the labor side, but I feel like the labor side is still in a pretty good shape, and I'm really worried about what's going on with inflation."
• She's very likely one of the highest 2025 dots (possibly the 7 seeing no further cuts this year as of September), and, we would guess, one of the 6-8 highest submissions for end-2026 (who saw 3.6 or 3.9% rates). The three highest longer-run dots on the FOMC are 3.6%, 3.75%, and 3.9%, each of which was selected by one participant.
• Over the summer she described current policy as "modestly restrictive, and only very modestly restrictive", saying at Jackson Hole in August that "with the information I have, if the meeting was tomorrow, I would not see a case for reducing interest rates".
• She says that the "genesis" behind the Fed's decision to cut rates last week was that "the balance of risks has shifted". "With some of the recent data that we saw around the employment side, it felt like the pressure that we're seeing on the inflation side of our mandate and the pressure that we're seeing on the employment side, were coming into better balance."
• She says that "right now is a unique time for monetary policy" given challenges to both sides of its mandate. Inflation is "high and we're running in the wrong direction", with the labor market "right around full employment" at a "pretty healthy rate" of unemployment of 4.3%, but with recent payrolls data suggesting "more softness there" and there is "some fragility" in the labor market overall. But in other indicators also suggest less concern is warranted, with the environment being "low hiring, low firing".
• Among other concerns, Hammack says, tariffs could result in "another wave of price increases that are happening in the first and second quarter of next year" due to contracts that get negotiated at the start of the year.
• On recent inflation data, "Right now we're seeing pressure come back in the goods sector. It may be that it's just related to tariffs, but we don't know that just yet. But beyond that we're also seeing pressure in services inflation. And that's harder for me to attribute to the tariff policies as what's driving that... And so when I step back and think about it, what we have to worry about again is this magnitude and persistence of our misses. And on the inflation side, part of the persistence issue is that if inflation misses for too long and is expected to be missing for longer, that could start to impact inflation expectations."

• Italy will look to sell E6.5bln of the new 6-month Mar 31, 2026 BOT at its auction on Friday 26 September.
• Note that the auction was previously scheduled for Thursday 25 September - we are not sure if this is a typo in the MEF press release or whether the date has changed.

• Treasury futures extending lows with Fed Gov Miran headlines crossing: sees appropriate FF rate "roughly 2-2.5%"
• Currently, the Dec'25 10Y trades -2.5 at 112-21.5 (yld 4.1486% +.0212) - technical support at 112-22/112-15+ (Low Sep 19 / High Aug 5 and 14).
• Curves mixed: 2s10s -.395 at 54.983, 5s30s +1.329 at 107.668.
• US$ index softer, Bbg's BBDXY -0.98 at 1197.52.