Weekly economic and financial commentary: Faster rate cuts from the ECB likely

Summary

United States: Jobs up, rate cut expectations down

• Nonfarm payrolls blew past expectations in September, rising 254K. Upward revisions to the prior two months' data sweetened the headline gain and bucked the trend decline in hiring, while the unemployment rate unexpectedly ticked down a tenth to 4.1%. The solid jobs report tamped down expectations for another 50 bps rate cut at the FOMC's next meeting in November.

• Next week: NFIB Small Business Optimism Index (Tue.), CPI (Thu.), Consumer Sentiment (Fri.)

International: Faster rate cuts from the ECB likely

• In the Eurozone, the September CPI report showed further progress on disinflation for the region’s economy. The combination of slower inflation and more downside risks to GDP growth has compelled us to update our forecast to include a faster pace of ECB rate cuts through early 2025.

• Next week: Japan Labor Cash Earnings (Tue.), Mexico CPI (Wed.), U.K. Monthly GDP (Fri.)

Interest rate watch: The outlook for longer-term interest rates

The FOMC cut the federal funds rate by 50 bps on Sept. 18, and other short-term interest rates promptly moved lower. However, longer-term yields generally have risen modestly since the FOMC reduced the federal funds rate a couple of weeks ago. For instance, the 10-year Treasury yield has climbed from 3.65% on September 17 to 3.95% today.

Credit market insights: On the road again; Student loan on-ramp comes to an end

As of the start of October, student loan borrowers who are late or miss payments can face credit reporting penalties, as the Biden administration’s year-long student loan “on-ramp” ended this month. For a portion of the over 40 million federal student loan borrowers, the end of the grace period means an additional financial hurdle for those who have missed payments.

Topic of the week: Middle East escalations capture attention

A further escalation of miliary conflict in the Middle East captured headlines for most of this week. As the conflict intensified, market participants were reminded that the ongoing conflict in the region does not yet have an end in sight one year on from the start of the war.

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