Inflation, Labor Market and Foreign Conflict Impacting Rates

Last Friday, we saw a Non-Farm Payrolls report that surpassed even the loftiest expectations. This caused a spike in yields as markets tried to assess the Fed’s next policy move. As the day went on, markets were able to recover as a slight increase in unemployment and declines in wage growth lent support to the notion that the current Fed policy is having the desired effect. Over the long weekend, the news flow was dominated by the distressing situation in Israel. These current events drove a flight to safety among investors, resulting in a dynamic fall in the 10-year yield during the first half of the week. During this time, we also heard a few Fed Governors suggest a pause in rate hikes at the upcoming November meeting, citing the wage growth and unemployment data mentioned earlier.

The highly anticipated CPI report was released on Thursday morning, showing slightly higher than expected Month-over-Month (MoM) and Year-over-Year (YoY) numbers. While the Core CPI (excluding Food and Energy) came in as expected, the MoM and YoY figures were sufficient to drive yields back up as markets attempt to digest the data's impact on future Fed policy. As the Fed analyzes the economic reports to guide its policy decisions, the many ongoing geopolitical situations do not make their job any easier. Expect the volatility to continue as the Fed endeavors to navigate this "soft landing."