This week’s key economic data release included the Fed’s preferred gauge for inflation, the Core Personal Consumption expenditures (PCE). The closely watched measure came in at 0.3% month-over-month and 2.7% year-over-year as expected. The headline PCE deflator was also in-line with expectations up 0.3% for the month and 2.7% for the year. As the Fed continues to balance the dual mandate of maximum employment and stable prices, committee members will be watching closely for any additional warning signs of accelerating inflation. Nevertheless, at last week’s Fed meeting, officials acknowledged core inflation is likely to remain elevated longer than expected, but some policy makers remain hesitant to cut interest rates further with inflation running above their target of 2%.
The September employment report will be a key data point at the Federal Reserve’s next policy meeting in October, but it is uncertain at this time whether Fed officials will have the data available with the growing possibility of a government shutdown. We did get positive news on the labor front this week, jobless claims decreased by 14,000 to 218,000 in the week ended September 20. This is the lowest level since July and reflects the reluctance of companies to lay off workers.
Other data released this week reflected a constructive economic picture. The US economy grew in the second quarter at the fastest pace in almost two years due to an upward revision of consumer spending. Gross Domestic Product (GDP) increased at a revised 3.8% annualized pace, which was stronger than the previously reported 3.3% advance for the same period. Durable goods orders surprised to the upside as well, rising 2.9% in August, while consensus expectations were for a decline of 0.3%. In addition, new home sales unexpectedly surged in August to the fastest pace since early 2022. Sales of new single-family homes increased 20.5% to 800,000 annualized rates in a broad advance.
The Chicago Fed National Activity Index (CFNAI) came in at -0.12 in August after a downwardly revised -0.28 in July. Although the report was better than expected, economic momentum remained below its historical trend for the fifth consecutive month. The three-month moving average shows a similar trend at -0.18 in August from -0.20 in the prior month signaling ongoing below-trend growth in national economic activity.
The University of Michigan Sentiment index fell to a four-month low due to growing concerns about the impact higher prices will have on personal finances. The final September sentiment index fell to 55.1 from 58.2 in the prior month. Inflation expectations were down slightly with the 1-year outlook now at 4.7% and 5-year at 3.7%.
As of this morning, both the 2-year and 10-year are trading marginally higher verses this time last week at 3.66% and 4.19%, respectively. After consideration of the economic data released this week, Chandler’s base case remains unchanged. We expect additional rate cuts this year and into 2026 and a steepening yield curve.
We also will continue to manage portfolios at a slightly longer duration relative to their assigned benchmarks.
Next week: Pending Home Sales, Job Openings and Labor Turnover Survey (JOLTS), Consumer Confidence, ISM Manufacturing, Construction Spending, Initial and Continuing Claims, Factory Orders, Durable Goods, Non-Farm Payrolls, Unemployment Rate, Underemployment Rate, Average Hourly Earnings, S&P Global US Services, ISM Services.
© 2025 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. All rights reserved. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth