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Labor Market Strong as Federal Shutdown Looms

A pending shutdown of the federal government stole the headlines from some positive economic data this week, while longer-term interest rates rose this week on expections of increased government debt issuance and potentially higher inflation.  The economic calendar was led this week by the lowest level of first-time claims for state unemployment benefits in nearly 45 years.  The figures suggest that the unemployment rate could fall further and perhaps trigger some long-awaited wage inflation. 

Inflation expectations climbed on the week, as oil prices rose and traders speculated about the impact of President Trump's forthcoming infrastructure plan.  This helped steepen the yield curve as shorter-term rates were mostly unchanged.  Temporary government funding is scheduled to expire Friday, and negotiations continue around crafting a plan to stave off a government shutdown.  As a result, markets largely treaded water on Friday, waiting for some resolution.

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