September 2026

The September jobs report was exactly what the FOMC needed to justify their stance on monetary policy.  The job gains in September had been expected to total 90,000, but were only 29,000, and the 162,000 jobs initially reported for August were revised lower to 133,000.

Headline unemployment rate rose from 4.1% to 4.2% but that was due to a rise in the labor force that exceeded household employment growth, both positive indicators.

The Bureau of Economic Analysis released the most recent revision to Q2 GDP, reporting that annualized growth was revised to 2.2% from 1.5%.  Along with that, personal consumption was revised to 3.8% from 3.4%, showing that consumers continued to consume into the summer.  Despite ongoing tariffs, imports exceeded exports, detracting 1.1% from growth.

Taken together, the labor market growing at a subdued pace and the economy continuing to chug along justifies the FOMC’s recent rate hike.  The question is whether the Committee will hike again at the October meeting. The hurdle is the inflation data to be released mid-month.  The early forecast is for the year-over-year core and headline measures to both increase by 0.1%, to 2.5% and 3.6%, respectively.  The uptick should be small enough to allow the committee to postpone an additional hike and observe how elevated prices impact consumer spending in the fourth quarter.

While we typically focus on domestic bond markets, we’d be remiss if we didn’t mention the repricing of risk in global bond market.  The recent sharp rise in French government bond yields has brought the issue to the fore.  Since the end of July, the French 30-year government bond has risen from 4.65% to a high this month of 5.53%.  It’s since recovered about 0.20% but remains elevated and a threat to French economy.  The cause of the rise is primarily alarm about the Country’s profligate spending and the government’s reluctance to reign it in.  It’s no coincidence that the French debt to GDP stands at approximately 120%, about the same as the United States.  The U.S. bond market has experienced a similar spike in interest rates over the same period.  Market watchers have attributed the spike to inflation risk compensation but also attribute at least some of the move to continued irresponsible fiscal behavior out of Washington.

In attempting to stimy the rise, Treasury Secretary Bessent on September 8th said stated that “I am the house” on the day after his action to buy bonds in the secondary market briefly caused bond yields to fall.  Since that day, the yield has continued to rise and any attempt at further market manipulation is likely to be equally unsuccessful.

Also weighing on the price of the 30-year is the effect of hedging by holders of mortgage-backed bonds.  Because the risk of prepayment by the borrower falls as rates rise, holders of the debt will experience extension and to hedge that their natural inclination is to sell long bonds, thereby exacerbating the selling.