Noisy headlines, quiet markets

The bond market remained relatively steady last week despite growing concerns of a breakdown in Federal Reserve independence. President Trump has been a vocal critic of its approach to monetary policy all year but primarily from a distance via social media. However, his recent attempt to replace a sitting Fed governor, if successful, could call into question the Fed's traditional separation from the executive branch. A loss of trust or credibility in the central bank could lead to higher or volatile longer-term interest rates. Fortunately, there’s no sign of this just yet, as the 10-year Treasury yield remains within the confines of its recent range.

Data last week included initial jobless claims in line with expectations at 229,000. Continuing claims were better than expected, declining just 7,000 from the prior week. Core PCE, the Fed’s preferred inflation measure, also landed in line with forecasts, as the July reading increased 0.3% from June and 2.9% year-over-year.  

Key data in this holiday-shortened week will focus on the labor market, with an important nonfarm payrolls release and the latest unemployment rate.