Fed Cuts 25 bps. yay
September 18, 2025
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–Fed cut 25 as expected, citing the labor side of the dual mandate. However, subsequent price action indicated hopes for a more dovish press conference. At one point Powell said ‘you can think of this 25 bp ease as a risk management cut’. Not exactly a green light signaling a string of forward eases. At futures settles SFRH’27 thru SFRH’31 were down 7 to 8.5. SFRH7 is still peak on the strip, settling 9705.0. Fives were weakest in treasuries, +6.3 in yield to 3.646%. I had mentioned previously that tens seemed magnetically drawn to the EFFR of 4.33%. New EFFR should be 4.08%, and tens ended at 4.07%, down 4.6 bps on the day. 5/30 treasury spread made a new low of 102 bps, fully 20 off the high posted at the start of September.
–MIran was the only dissenter, favoring 50. I see that as a victory for Powell, and applaud Waller for sticking with the committee. Sure, it probably takes him out of the running for Fed Chair, but who wants the constant hassle? One journalist noted that for the past several years the Fed’s projections have always had the 2% inflation goal at least two years in the future. I randomly checked June 2023 and the 2.0 projection was in the ‘Longer Run’, not 2025. But by Sept 2023, the 2.0 target was listed at end 2026, where it stayed until Sept 2024. Then in Dec 2024, the end of 2026 was revised higher to 2.1% and the 2.0 target was ‘Longer Run’. Always out there in the future… until eventually that target is simply abandoned.
–Early exit seller of 100k 0QZ5 9700/9725cs at 10 (some at 9.75) ref SFRZ6 9707. Futures settled 9704 and the call spread settled 9.5. This trade had been carried for a long time, initially starting as a midcurve June call spread that was rolled into 0QU5 9700/9725 and then rolled into 0QZ 9700/9725 for 1. SOFR vol was hit hard as hedges for a more proactive Fed were exited. For example, SFRZ5 settled unch’d at 9636, and the 9637.5 straddle went from 21 on Tuesday to 18 settle. SFRH6 settled -1.5 at 9660, and the 9662.5^ fell from 37.5 to 35.0.
–There are always bankruptcies occurring, but this opening line from theweek.com (Joel Mathis) is perhaps notable:
“Nearly two decades ago, the collapse of the subprime home loan market sparked the Great Recession and devastated the economy. There are echoes of that history in the recent collapse of Tricolor Holdings, a subprime auto lender.”
Tricolor. From being in the pink to just plain red.
–Jobless Claims and Philly Fed Mfg today, expected 240k and +2.3 from -0.3
