Capital Markets Update
 

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Week of 12/15/25 - 12/22/25

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For those who care what interest rates do, and who doesn’t, last week the Federal Open Market Committee (FOMC) lowered the fed funds rate by 25-basis points as widely expected, though the committee was split with four members preferring no change. The committee faces the challenging task of weighing persistent high inflation against a softening labor market. During his press conference, Chairman Powell continued his recent rhetoric: future moves would be guided by data, and the path of monetary policy is not a foregone conclusion. The upside risk to inflation remains the question of whether the tariffs have caused a one-time increase in price levels or if prices will keep rising. Meanwhile, hiring has fallen to a cycle low (per the October JOLTS report), and employment costs have risen at their slowest annual pace since mid-2021.
 

This week brings a dense slate of delayed U.S. employment and inflation data that could clarify which side of the Fed’s dual mandate (labor or prices) deserves greater attention. Key releases include November payrolls tomorrow and October PCE on Friday, alongside retail sales, PMIs, housing data, sentiment surveys, and remarks from Fed officials. Globally, markets will also digest central bank decisions from Europe and Japan, with a Bank of England cut and a potential Bank of Japan hike in focus, while U.S. supply features 20-year bonds and 5-year TIPS midweek. In MBS, investors will monitor Class C and D 48-hour notifications on Tuesday and Thursday. Today’’s calendar kicked off with Empire manufacturing for December. Later today brings the NAHB Housing Market Index for December and some Fed speak. We begin the day with Agency MBS prices little changed from Friday’s close, the 2-year yielding 3.51, and the 10-year yielding 4.17 after closing last week at 4.19 percent.

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Commentary by Rob Chrisman