Monthly Interest Rate Update
A federal shutdown has delayed the September jobs report, but alternative data shows a weakening labor market, with falling job growth, declining wages and rising underemployment. In response, the Fed cut rates by 0.25% in September, with more cuts expected despite 3.0% inflation. Interest rates are at year lows, and borrowers are locking in lower rates. The shutdown’s continuation could further cloud economic visibility.
Even as labor market data becomes an increasingly important driver of interest rate movements, the Federal government shutdown has delayed the September jobs report. Markets have been focusing on the Bureau of Labor Statistics’ employment report as a key influence on monetary policy and an important indicator of where we are in the economic cycle. However, amid Federal budget negotiations, the government shutdown has taken away some of the most widely-followed indicators of the economy’s health—job growth, unemployment, wage growth and many sub-categories. The BLS is also responsible for critical inflation data like the Consumer Price Index (CPI) which is scheduled to come out on October 15. If the shutdown persists, the economic instrument panel will get even darker. So far, interest rate markets have taken a wait-and-see attitude regarding the lack of information, with volatility falling to four-year lows.
Luckily, there are alternative indicators that investors and policymakers can use for now. While official government data has been temporarily suspended, the broader picture remains fairly clear: The job market continues to weaken no matter how you measure it.
- This month’s ADP payroll report showed that private job growth declined by 32,000 in September.
- Workforce data firm Revelio Labs showed a slightly more positive picture, saying the job market is at “stall speed” with just 60,000 jobs created this month, while wages declined 0.3%.
- Indexes published by the Institute for Supply Management (ISM) show the workforce has been contracting in both manufacturing and services.
- The job-posting site Indeed has tracked a steady decline in job openings over the past year.
Right now, the job market is in a low-firing/low-hiring mode, with limited job turnover. People with jobs are cautiously hanging onto them, while those without are struggling to find them. The underemployment rate is at its highest in four years.
Given the broad signals of labor market weakness, the Fed cut rates by a quarter-point in September, and futures traders have priced in two or three more cuts by the end of the year. This comes despite persistently high inflation near 3.0%. A breakdown of inflation data suggests price pressure isn’t limited to goods touched by tariffs but extends to the service sector too. If inflation remains elevated, the Fed will have trouble justifying more aggressive monetary easing unless we see a substantial unravelling of the job market.
Interest rates hit 12-month lows last month, with notable declines at the front and middle of the curve. Ten-year Treasury yields are down 45 basis points year-to-date, while both two- and five-year yields are 67 bp lower. Three- to five-year rates continue to be the low point of the curve. In the near-term, we’re likely to see rates stay near the lower end of their recent range as the economy adjusts to a shrinking labor force, and supply chains adapt to the still-unfolding tariff regime. With a steady pace of rate cuts already priced into long term rates, borrowers have been taking advantage of the lower benchmark rates as well as tighter spreads across the corporate debt markets. We have also seen a boost in activity in the swap market since late July as more floating rate borrowers use these instruments to fix their rates.
Key Statistics: Interest Rates, Unemployment and Inflation
| Year-end 2021 | Year-end 2022 | Year-end 2023 | Year-end 2024 | September 30, 2025 | |
|---|---|---|---|---|---|
| 10-yr Treasury yield | 1.51% | 3.87% | 3.88% | 4.57% | 4.15% |
| 2-yr Treasury yield | 0.73% | 4.43% | 4.25% | 4.24% | 3.61% |
| Spread | 0.78% | -0.56% |
-0.37% | 0.33% | 0.54% |
| Fed Funds Target (mid) | 0.125% | 4.375% |
5.375% | 4.375% | 4.125% |
| CME Term SOFR 1-mo | 0.055% | 4.36% | 5.35% | 4.33% | 4.10% |
| CPI (y/y change) | 7.0% | 6.5% | 3.1% | 2.7% | 2.9% |
| Core PCE (monthly) | 4.1% | 4.7% | 3.16% | 2.81% | 2.91% |
| 5-yr TIPS (market breakeven) | 2.91% | 2.38% | 2.15% | 2.39% | 2.42% |
| U-3 Unemployment | 3.9% | 3.5% | 3.7% | 4.2% | 4.3%* |
| Real avg weekly earnings | 4.7% | -3.1% | 0.5% | 1.0% | 1.4%* |
| Annual change in NFP jobs | +6,451,000 | +4,503,000 | +2,560,000 | +1,450,000 |
+1,229,000* |
* August data; September delayed by government shutdown.
Key U.S. Interest Rate Benchmarks
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Benchmark rates across the curve touched 2025 lows last month as the job market softened and the Fed resumes rate cuts.
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The spread between two- and five-year Treasuries (white and gold) remains tight. Meanwhile, the 10-year yield (green) has broken away.
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Floating indexes like SOFR (magenta) mirror the Fed’s elevated target rate, so while the middle of the curve drops in anticipation of upcoming cuts and the back end steepens, we see a U-shaped curve.
Treasury volatility at lowest in over three years
Alternative labor market data
Source: ADP Research
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All rates shown are indications only and subject to change.
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