Federal Reserve

Friday’s jobs report did what the Fed had been worrying about it wouldn’t. Employers added just 29,000 jobs in September, far below the roughly 84,000 to 90,000 economists had expected, and unemployment ticked up to 4.2%. That cooled the bets on another rise in interest rates, and NASD rallied hard into the close, touching a new all-time intraday high before settling just short of its record close. Dow and DAX both finished the week lower, though, and bond yields were still high enough to keep the mood cautious. ...

It was a choppier week than the closing numbers suggest. Bond yields surged again in the middle of the week, unsettling all three indices for a day or two, before oil prices eased and an AI-driven rally in chip and tech names pulled everything back up by Friday. NASD did more than recover: Meta, AMD, and Intel led it to a fresh all-time high close mid-week, and it finished Friday just a fraction of a percent below that record. Dow, meanwhile, snapped a three-week losing streak. ...

The Fed did what the market had been pricing in for weeks: on Wednesday it raised its main interest rate by a quarter point, to a range of 3.75-4.00%, the first time it’s raised rates since 2023. What happened next is the more interesting part. Government bond yields pushed above 5% for the first time in almost two decades, which weighed hard on Dow and DAX, while NASD brushed the whole thing off and finished the week higher. That split, not the rate rise itself, is the story going into this week. ...

Everything else this week is just waiting for Wednesday afternoon. That’s when the Fed announces its rate decision, a few hours after August’s retail sales figures come out the same morning, and because policymakers stop giving speeches or interviews in the fortnight before every meeting, there’s nothing else on the calendar that comes close to mattering as much. Last week’s inflation figures came in higher than expected, and that alone was enough to tip the balance: traders now think the Fed is more likely than not to raise rates, where a week ago it was closer to an even bet. Wednesday is where we find out whether that shift was the right call. ...