This week’s Fedspeak should be interesting, as market participants will likely look for pushback on the recent market moves. Chairman Powell’s remarks on optionality from the November FOMC will be closely watched. He said two weeks ago that the possibility of a “higher for longer” Fed regime could be an option.
The Fed has signaled that it plans to send US interest rates higher than expected in coming weeks. As a result, the USDJPY jumped to 145, but eased back due to currency intervention by the Japan Ministry of Finance. Despite this, the USD has room to rally higher.
If the CPI shows signs of rolling over, the Fed may shift tone. The Federal Reserve is committed to keeping inflation expectations in check. It may be necessary to slow down on rate hikes this year until it is clear that the economy is growing at a steady pace. The Fed also needs more information to make decisions on the next steps in the economic outlook.
The week’s economic calendar is quite busy. There is a slew of important economic reports this week, including the September UK jobs market. The UK consumer price index, retail sales, and unemployment rate are all expected to be released. The Bank of England will testify in Parliament on Wednesday, and there is a number of other high-level Fed officials scheduled to speak this week.
Another big event this week will be the CPI report. Economists expect the annual CPI to grow at 7.9% and the core to rise by 6.5%. While a modest CPI would indicate a moderation in the economy, it may also confirm Fed rate hike bets.
After a wild week in the markets, the Fed’s speakers are back in full force. Markets are pricing in a lowered terminal rate of 2%, but it is still premature to claim victory over inflation. The Fed continues to raise rates, but it’s likely to take longer before they hit their 2% annual goal. The central bank has a long way to go before the economy is back to its pre-crisis position.
The UK’s GDP surprised many with an increase of 0.3 percent in Q1 compared to forecasts of a further decline. In addition, recent economic news has been positive. The US performance continues to be encouraging, thanks to the housing recovery and lower domestic energy prices. But geopolitical tensions are a key risk factor that could push interest rates higher
