- Lead. Treasury Secretary Scott Bessent said Tuesday that US core inflation had retreated to approximately 2.3 percent and forecast third-quarter GDP growth in excess of 3 percent, offering the administration’s most direct counter yet to concerns that the economy is slowing faster than the Federal Reserve expected.
- Fact. September payrolls added just 29,000 jobs, well below forecasts, and the unemployment rate climbed to 4.2% — data that drove Fed hold bets to 84% on futures markets and complicated the case for the back-to-back rate hikes that fixed income markets had been pricing for October and December.
- Stake. How policymakers read the divergence between weak employment and resilient services activity will determine whether the Fed hikes again this year or holds, with significant consequences for borrowing costs across mortgages, corporate debt, and emerging-market currencies.
Scott Bessent told reporters on Tuesday that he characterised the US economy as accelerating into the third quarter, citing core inflation that had retreated to “around 2.3 percent” and projecting Q3 GDP growth in excess of 3 percent. He added that mortgage rates would fall once the Iran conflict was resolved, framing geopolitical risk as a temporary overhang on an otherwise sound economy. His comments were reported by Newsquawk in its 6 October European opening note.
Reading Two Conflicting Data Points
The timing placed Bessent’s optimistic outlook in direct dialogue with a labour market that has been sending mixed signals. September payrolls added just 29,000 jobs — far below the 100,000-plus monthly average that had characterised much of 2025 — and the unemployment rate ticked up to 4.2%. That print landed days after the Federal Reserve’s first rate hike in more than three years, a 25-basis-point move in September that brought the target range to 3.75%–4.00%. Fixed income markets had been firmly pricing two more hikes — one in October and one in December — before the payrolls miss shifted the balance: futures markets moved quickly to price an 84% probability of a hold at the October meeting.
Bessent’s 2.3% core inflation figure sits close to the Fed’s 2% target. Official August data showed core PCE at 3.0%, below earlier forecasts, while the October 2026 nowcast by the Cleveland Fed placed the annual CPI rate at 3.58% and core CPI at 2.30%. The gap between headline and core measures reflects the energy price distortions introduced by the Middle East conflict; the Fed has indicated it focuses on core measures when those distortions are clearly exogenous.
The Growth Picture
A Q3 GDP reading above 3% would mark an acceleration from 2025, and Bessent’s projection builds on a services sector that has remained firmly in expansion territory. The ISM non-manufacturing index held at 55.1 in September, above the 50 threshold that separates expansion from contraction, and the Atlanta Fed’s GDPNow tracker had been running at elevated levels through September. The disconnect between a weak jobs print and still-solid output data is consistent with a pattern in which companies have slowed hiring without cutting existing workforces — a form of deceleration that the Treasury characterised as a normalisation rather than a deterioration.
What Bessent Left Out
The Treasury Secretary’s optimistic framing acknowledged the debt position inherited from previous administrations but did not address the distributional dimensions of the current cycle. The rate hike that took the fed funds rate to 4.00% has pushed the 10-year Treasury yield to 5.17% — its highest since 2007 — adding directly to housing costs and government debt service. Australian consumer confidence fell to 80.4 in October, a 4.7% monthly drop, illustrating how rate increases in one major economy propagate sentiment effects globally. Whether the Fed interprets Bessent’s confident reading as a green light to hold in October — or as a reason to continue tightening — is the question now shaping bond markets heading into the next FOMC meeting.