We are cautious about reading too much into the USD’s overnight gains. The DXY Index’s post-FOMC rebound has reached 97.9, taking back losses triggered by the weak US nonfarm payrolls (NFP) data released on September 5. The same is likely to be true for the US Treasury 2Y and 10Y bond yields. For these yields to head higher, the futures market will need to remove the two Fed cuts priced in for October and December.
Although most Fed officials have pushed back against the market’s aggressive rate cut bets, many have become less concerned about tariff-led inflation becoming entrenched and have found more urgency in arresting labour market softness. Today, US initial jobless claims could rise again for the week of September 20 after the surprise 33k decline to 231k reported for the previous week. Tomorrow’s core PCE inflation, the Fed’s preferred price gauge, is expected to stay unchanged at 2.9% YoY in August, below the 3.1% projected in the Summary of Economic Projections for 4Q25.
The US Bureau of Economic Analysis (BEA) will also release the results of the annual update of the National Economic Accounts today, which will cover revisions to GDP from 1Q 2020 to 1Q 2025. The BEA’s revisions are unlikely to mirror the drastic adjustments in the employment revisions by the Bureau of Labour Statistics (BLS); the latter is based on survey data that historically tend to be overstated relative to administrative tax data. However, over the past two decades, the BEA’s revisions have been more likely to lower GDP growth than to raise it.
If so, US President Donald Trump will likely repeat his claim that the Biden administration overstated US economic exceptionalism. With the 2026 midterm election in sight, Trump and his MAGA-aligned Republicans are looking to weaken the Democrats’ economic credibility and press for faster and larger Fed cuts. US Treasury Secretary Scott Bessent criticized Fed Chair Jerome Powell yesterday for being backward-looking and not recognizing that rates were too restrictive, needing cuts of at least 100-150 bps by the end of the year. Hence, in contrast to September 2024, when a pre-election Fed cut fuelled optimism about Trump’s policies boosting US growth, the September 2025 cut carries a different message of waning US exceptionalism ahead of next year’s midterms.
Quote of the Day
“Obstacles are those frightful things you see when you take your eyes off your goal.”
Henry Ford
September 25 in history
In 1926, Henry Ford announced an 8-hour, 5-day workweek for workers at Ford Motor Company.
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