While the municipal market barely budged following the Fed's decision to cut rates 50 basis points, Thursday saw muni yields rise up to two basis points, depending on the scale, but still lagged the weakness in USTs. LSEG Lipper reported $716 million of inflows into municipal bond mutual funds.

The Fed's 50 basis point cut surprised many, as a looming federal election and all the uncertainty that brings complicates efforts at forecasting.

Given the Fed's reluctance to "surprise markets or take actions that could be perceived as overtly political," Interactive Brokers Chief Strategist Steve Sosnick said, "we find it hard to believe that anything other than 25 bp is the likely outcome for the upcoming FOMC meeting."

The Federal Reserve's inspector general says the reserve bank CEO did not trade on confidential information or have conflicts of interest, but did violate central bank rules and policies.

"The numbers are weak, but not cusp of recession weak," Chris Low, chief economist at FHN Financial, said.

"Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook," the report said.

The Fed's expected September rate cut will "make market conditions more conducive to moving projects forward" said Dodge Construction Network's chief economist Richard Branch.

"Fed watchers will be parsing Powell's comments for signs that a 50bp rate cut is on the table for September," noted Lauren Saidel-Baker, an economist with ITR Economics. "However, the notoriously tight-lipped chair is unlikely to confirm this, making a 25bp cut the most likely outcome."

Federal Reserve Gov. Michelle Bowman said she has concerns about an uptick in inflation and will need to see more positive data before supporting an interest rate cut.

Vikram Rai of Wells Fargo is dubious of some widely-held assumptions.

"Decelerating or slowing economic growth has sparked a classic flight-to-quality trade with short-term Treasuries being the prime beneficiary," said Gary Pzegeo, head of fixed-income at CIBC Private Wealth U.S.

All eyes now turn to the September Federal Open Market Committee meeting where the Fed is expected to cut rates, but market participants are mixed on whether it will be a 25- or 50-basis-point cut.

"The Fed remains data dependent as always, but it now appears that the 'more good data' bar is not as high as it was before, particularly with labor market developments becoming more important," said Michael Gregory, deputy chief economist at BMO Economics.

Economists expect the FOMC to hold rates, although some say there's a case to be made for a July cut, with Fed Chair Powell setting the table for September.

The Fed chief said "more good data" is needed before interest rate targets are lowered.

Ransomware group LockBit threatened on Sunday to publish the stolen data Tuesday evening. Ransomware experts said it was likely that the group was bluffing.

"It is hard to be overly excited about current valuations of tax-exempts relative to Treasuries; however, at tax-adjusted yields (using individual tax brackets), munis look quite attractive compared with other asset classes," noted Barclays PLC.

Municipal bond mutual funds saw small inflows as investors added $16.4 million to the funds after $154.4 million of inflows the week prior, according to LSEG Lipper.

The Philadelphia Fed president said there can be as few as no cuts or as many as two this year, but if his projections are accurate, one decrease would be appropriate this year.

"We need to see more evidence to convince us that inflation is well on our way back down to 2%," Federal Reserve Bank of Minneapolis President Neel Kashkari said.