Overview:  Mortgage backed securities sold off (higher rates) due to a very “hawkish” tone from the Fed, very strong economic data (ISM Services) and very strong Jobs data – even with weather related (hurricane) headwinds.

Jobs, Jobs, Jobs:
Non Farm Payrolls (NFP) September 134K vs est of 185K
NFP August revised from 201K to 270K
NFP July revised from to 147K to 165K
The rolling three month average is now a healthy 190K
Wages:
Average Hourly Earnings YOY 2.8% vs est fo 2.8%
Average Hourly Earnings MOM 0.3% vs est of 03%
Unemployment:
The national Unemployment Rate is 3.7% vs est of 3.8%
The Participation Rate 62.7% is vs est of 62.7%

In a separate report, the September ADP Private Payrolls Employment Report showed a surge of 230K new jobs which beat out forecasts of 185K. August was revised higher from 163K to 168K.

The Talking Fed: 
Chicago Fed President Charles Evans said that he was comfortable with expectations in financial markets that the U.S. central bank will raise interest rates again in December.
Richmond Fed President Thomas Barkin said that the U.S. economy appears strong but eventually might face shocks such as a “political crisis” or an abrupt and difficult exit by Britain from the European Union.

Fed Chair Jerome Powell spoke just one week after the Federal Reserve raised their Fed Funds Rate. He spoke at the 60th Annual National Association for Business Economics Annual Meeting in Boston.
Overall, his tone remained “hawkish” as it has for all of his speeches since he became Fed Chair. Here are a few statements/takeaways:
• “Our best estimates, however, suggest that so long as inflation expectations remain anchored, a modest steepening of the Phillips curve would be unlikely to cause a significant rise in inflation or demand a disruptive policy tightening. Once again, the key is the anchored expectations.”
• “This historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times. Our ongoing policy of gradual interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times, so as to extend the current expansion, while maintaining maximum employment and low and stable inflation.”
• Powell expresses confidence that low unemployment won’t spur a takeoff in prices that would force the Fed to hike interest rates aggressively.
• One key quote: “The rise in wages is broadly consistent with observed rates of price inflation and labor productivity growth and therefore does not point to an overheating labor market”
• Another: “Our course is clear: Resolutely conduct policy consistent with the FOMC’s symmetric 2 percent inflation objective, and stand ready to act with authority if expectations drift materially up or down”
• And finally: “So long as inflation expectations remain anchored, a modest steepening of the Phillips curve would be unlikely to cause a significant rise in inflation or demand a disruptive policy tightening”
• Powell doesn’t offer any hints at how high rates might go this cycle

ISM Services: Can we say “blockbuster“? The September reading hit its highest level in 20 years!!! This report represents MORE than 2/3 of our economic engine.