This Week’s Markets are Tense as Inflation Takes Center Stage

This Week's Markets are Tense

This Week’s Markets are Tense

This week, the markets and the Federal Reserve will focus on inflation, their go-to subject of the moment, following a week in which news indicated that the labour market is robust in the face of rising interest rates.

The Bureau of Labor Statistics will release its September report on producer prices, also known as wholesale inflation, on Wednesday. The more well-known consumer price index will be released the following day. A letup from August, when the PPI posted an annual rate of 8.7% and the CPI 8.3%, will be watched for by economists and others. Both are anticipated to decline moderately.

That, however, will hardly be sufficient to stop the Fed from continuing its aggressive programme of tightening monetary policy. Interest rates have already gone up by the central bank by 75 basis points three times in a row, and another one in November cannot be ruled out, but a smaller increase is likely as the Fed assesses the impact of its actions on the economy.

This Week's Markets are Tense
While consumer spending has remained steady, there has been a discernible change in consumers’ purchasing habits away from expensive items like furniture and appliances and toward services like dining out or health care

The government revealed last week that there are still 10.1 million unfilled positions, or 1.7 jobs for every available worker, even though there are still plenty of jobs available and businesses are still actively hiring.

The September PPI report on October 12 and the CPI report on October 13 are the coming week’s most significant economic announcements, according to Comerica Bank Chief Economist Bill Adams. “With the unemployment rate back down to a half-century low in September, the Fed is completely focused on managing inflation,” Adams said on Friday after the monthly jobs report showed companies added 263,000 workers in September.

In both reports, price increases for durable goods are probably going to taper down, but the inflation rate for housing costs will probably remain very high, the economist continued. Even though rents are still high, home sales have decreased by over 25% from a year ago since mortgage rates are now double what they were in 2021 due to the Fed’s increase of interest rates.

While consumer spending has remained stable, there has been a discernible change in consumers’ purchasing habits away from expensive items like furniture and appliances and toward services like dining out or health care. With the price of used cars and building supplies falling along with petroleum, inflation has moderated a little. However, the cost of goods is still increasing at double-digit rates.

According to the most recent Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker, published last week, fewer Americans now anticipate more inflation than they did at the beginning of September, with decreases of 6 percentage points for overall inflation, 8 for bills, and 5 for taxes. However, the majority of Americans also anticipate an increase in their expenses (55%) and taxes (51%). “We do not expect the September CPI report to offer a “all-clear” signal on inflation that would warrant Fed authorities to slow down their current pace of rate increases,” Wells Fargo analysts said in a statement on Sunday.

“In the current geopolitical environment, the outlook for energy and food prices remains uncertain, and while the ground is set for core inflation to ease on trend in the coming months, there remains significant ground to make up in bringing inflation back down to officials’ preferred 2% target,” they added. In order to maintain their aggressive rate-tightening pace for the rest of the year, Fed officials are expected to maintain their conservative estimate of inflation.

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