FHN Financial

Muni bonds have been key for growing public school districts in Texas that have confronted surging labor and construction costs over the last decade, said?Ajay Thomas, head of public finance for FHN Financial. Issuers in California are going to need low-cost capital to rebuild after wildfires devastated the Los Angeles region, he added.

With at least two more cuts, and with an interest rate curve that steepens to reflect them, “we think bank demand will continue to accelerate,” says FHN Financial mortgage strategist Walt Schmidt. “However, anything less than that will likely dampen bank demand, which would produce a longer-term holding pattern for spreads.”

The mismatch likely reflects "a higher terminal rate when the Fed is done cutting," according to Chris Low, chief economist at FHN Financial.

“You know, mortgage rates being one notable example,” said Abby Urtz, head of product strategies and economics with FHN Financial.

"These are the borrowing rates that tend to weigh on economic activity more than the overnight lending rate, according to the Fed’s models," Will Compernolle, macro strategist at FHN Financial, said in a Thursday client email.

“September is a difficult month for the BLS to process because the composition of the labor force changes drastically when summer ends and fall begins,” Chris Low, chief economist at FHN Financial, said in a note.?

The September employment report, which showed 254,000 new jobs created, "was strong enough across the board to completely change the macro narrative in the Treasury market," said FHN Financial strategist Will Compernolle in New York.

Recent revisions to gross-domestic-product data showed households have much more savings than previously thought. Before the revisions, a slowdown in outstanding credit seemed much more likely to imply a slowdown in spending, said Will Compernolle, economist at FHN Financial.

Sophia Kearney-Lederman, senior economist at FHN Financial, said she expects markets to stabilize in favor of one or the other at some point before the meeting, likely on the side of a smaller cut.?

Looking ahead: "The trend over the past several months shows that consumption continues to drive the expansion, and that the economy does not appear to be on the brink of recession," said economist analyst Mark Streiber of FHN Financial.