WASHINGTON
U.S. industrial production rose 0.7 percent in September, according to Federal Reserve data, signaling persistent economic momentum heading into the Fed's policy decision and clouding expectations for rate cuts.
Manufacturing output advanced 0.3 percent while utilities jumped 3.5 percent, likely driven by seasonal demand. Mining added 0.2 percent. Capacity utilization climbed to 76.9 percent, indicating factories and mines are absorbing available production capacity.
The strength reshapes near-term rate-cut odds. Fed funds futures traders are repricing the probability of a December cut lower, with the market now pricing in extended pause risk. The data reinforces the "higher-for-longer" narrative that has gripped the curve since spring.
For bond traders, the immediate consequence is duration risk on the long end. If fewer cuts materialize over the next two quarters, 10-year yields face upside pressure and two-year spreads compress further. The short end has already priced most of this scenario—further economic resilience could push two-year yields higher even if the Fed holds steady.
