Member Services Desk
Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending February 14, 2025.

Economist Views

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The statistical focus will shift to soundings on housing activity in the upcoming week. Homebuilder sentiment probably improved from negative to neutral this month. Weather conditions likely hampered new residential construction activity in January, while existing home sales reversed an end-of-year gain. Jobless claims are expected to remain at benign levels. Local readings on manufacturing and services activity are expected to be mixed. A quintet of Fed officials, including a trio of current FOMC voters, are slated to speak about the economic outlook and monetary policy.

Empire State Manufacturing Survey: Manufacturing activity in New York State likely expanded in February, with the general business conditions diffusion index – the percentage of respondents experiencing an improvement less those witnessing a falloff – moving back into positive territory after the -12.6% reading recorded in January.

NAHB Housing Market Index: Rosier appraisals of sales, along with a pickup in buyer traffic, likely propelled the sentiment gauge above the critical 50-point mark for the first time since last April. Monitor the regional details in the February report, as homebuilders in the Northeast have been far more confident than elsewhere, with their reading at a nearly 3-year high of 67 in January.

Housing Starts & Building Permits: A tug of war between unusually frigid temperatures and historically low precipitation levels probably left the number of new housing units started and building permits issued below the respective seasonally adjusted annual rates of 1.5mn and 1.48mn recorded in December.

New York FRB Services Activity Survey: Service-producing activity across NY State, Northern NJ, and Southwestern CT likely contracted modestly for a fifth straight month in February, although the general business conditions index probably improved from the -5.6% reading posted in January.

 Jobless Claims: Labor market conditions likely remained healthy during the period ending February 15, the survey period for the upcoming employment situation report. Initial claims for unemployment insurance benefits likely stayed in the low 210K-225K band. The number of persons receiving regular state benefits will likely be sub-1.9mn again during the week ending February 8.

Index of Leading Economic Indicators: The Conference Board’s gauge of prospective economic activity is expected to have held steady in January after a .1% dip in December. There is little evidence that the economy is in any danger of faltering. Indeed, a model constructed by the St. Louis Fed estimated the probability that the economy was in recession in December at a negligible .14%.

Existing Home Sales: Declining home-purchase contract signings over the November-December span suggest that sales probably retreated by 2.3% to a 3-month low seasonally adjusted annual rate of 4.14mn in January. With the number of available homes on the market likely to climb by 2% to 1.17mn on a not seasonally adjusted basis during the period, the supply at the estimated sales pace would move one tick higher to 3.4 months.

Federal Reserve Appearances:

• Feb. 17  Philadelphia Fed President Patrick Harker to speak on the economic outlook at the University of The Bahamas.
• Feb. 17  Fed Governor Bowman to speak to the American Bankers Association on the economy and regulatory outlook.
• Feb. 18  San Francisco Fed President Daly to participate in a discussion at the 2025 ABA Conference for Community Bankers.
• Feb. 19  Federal Reserve to release minutes of January 28-29 FOMC meeting.
• Feb. 20  Chicago Fed President Goolsbee to speak at an event hosted by the Chicagoland Chamber of Commerce.
• Feb. 20  St. Louis Fed President Musalem to speak about the outlook to the Economic Club of New York.

Key Market Trends

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CHART 1 UPPER LEFT
Source: Bureau of Labor Statistics; FHLB-NY. It is instructive to analyze the factors (enlarge the chart for a detailed view) driving consumer price inflation since the beginning of last year. All but a fraction of the 3% increase in the headline CPI since January 2024 has been attributable to higher non-energy services costs, primarily those for shelter and transportation services. Retail food and energy costs, which were a major focus of voters in the 2024 election, had a comparatively limited impact on consumer inflation over the last 12 months. Looking ahead, more progress in stemming those costs will be necessary to bring consumer inflation back to the Fed’s desired 2% target.

CHART 2 UPPER RIGHT
Source: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve was higher by 8 to 12 bps from a week ago, led by the 5-year. Last Friday’s relatively sturdy jobs report, followed by this past Wednesday’s higher-than-expected CPI inflation report, propelled the move. Fed Chair Powell also noted on Wednesday morning, regarding the Fed’s goal, that it was “close but not there on inflation.” The 5-year UST reached 4.50% midday Wednesday but has retreated to 4.39% as of late Thursday. As of Thursday afternoon, the market prices end-2025 fed funds ~4.02%, or 13 bps higher than a week ago, which equates to slightly more than one 25-bps Fed cuts. The market’s end-2026 forward is ~3.94%, also 13 bps higher than a week ago.

CHART 3 LOWER LEFT
Source: “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom, and Steven J. Davis at www.PolicyUncertainty.com. Notes: Blue-shaded areas denote recessions; orange-shaded area highlights the current economic expansion. Economic policy uncertainty has risen markedly with the change of presidential administrations, per this index, as of January. Indeed, based on press coverage, temporary federal tax code provisions, and forecaster disagreements on key variables influenced by federal, state, and local governments, economic policy uncertainty stands at its highest level since October 2022 – near the height of the post-pandemic inflation surge. Given recent downbeat consumer sentiment soundings and the flurry of tariff news in the past two weeks, it is fair to assume that economic policy uncertainty continued to climb in the current month.

CHART 4 LOWER RIGHT
Source: Bloomberg; “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom, and Steven J. Davis at www.PolicyUncertainty.com. As readers might surmise, a big reason for the spike in uncertainty could be related to trade policy news, and that is indeed the case. As seen here, the trade policy uncertainty index has notably spiked through January and looks poised to rise further after the flurry of tariff news thus far this month. Interestingly, despite the spikes in economic uncertainty, various market-implied volatility measures appear benign. For instance, short-expiry swaption implied volatility is at or near a past-year low, while the VIX index for stock volatility is just shy of its past 1-year average. Perhaps the markets are in wait-and-see mode, much like the Fed, thereby dampening larger market moves for now.

FHLBNY Advance Rates Observations

Front-End Rates

• Short-end rates, as of Thursday afternoon relative to a week prior, were unchanged 1-month-and-in but higher and steeper by 1 to 4 bps thereafter. The move was mainly precipitated by the market’s repricing lower the extent or probability of Fed cuts this year. Investor demand for short investments, meanwhile, has generally remained sturdy along with robust Money Market Fund AUM levels supporting our paper.
• The market will monitor the “non-Tier 1” economic data and Fedspeak calendar in the upcoming holiday-shortened week.

Term Rates

• The longer-term curve, generally mirroring moves in USTs and swaps, was 8 to 12 bps higher than last Thursday afternoon. The rise was led by the 5-year, with most other tenors up by 10 to 11 bps. Kindly refer to the previous section for color on market dynamics and changes. We encourage members to engage with the Member Services Desk for current rate levels and market dynamics.
• On the UST term supply front, the upcoming week serves a 20-year nominal and a 10-year TIPS auction. Note that UST auctions usually occur at 1pm and can occasionally spur volatility around that time. Please contact the Member Services Desk for further information on market dynamics, rate levels, or products.

Price Incentives for Advances Executed Before Noon: In effect as of Tuesday, September 5, 2023, the FHLBNY is pleased to now offer price incentives for advances executed before Noon each business day. These pricing incentives offer an opportunity to provide economic value to our members, while improving cash and liquidity management for the FHLBNY. For further details, kindly refer to the Bulletin.