There is no doubt the US job market has cooled down. The crucial question now is how the Fed would assess this slowdown and adjust its monetary policy. Remember, Powell has been very clear that further regression in this area would be unwelcome. However, current data do not indicate that a “hard landing” awaits the US economy. As history shows, the Federal Reserve in the past has decided on stronger actions when nonfarm employment was negative in these months preceding the decision. This was the case in 2001 and 2007. Currently, the situation seems to be significantly better. Comparing the current unemployment rate with those two periods, 2024 stands again as the winner. Additionally, I believe a 50 bp move in September might result in a heightened risk aversion in the market. The prevailing interpretation of such a decision could be that the Fed has delayed its response and wants to catch up. I also think that speculation may increase that the central bank knows more about the current economic situation than publicly available indicators suggest.
Forecasts for CPI data indicate that the core CPI year-over-year should significantly reduce from 2.9 percent to 2.6 percent, and the base should remain at 3.2 percent. The monthly trend, according to expectations, should stabilize at 0.2 percent, which is just as much as the July figure. If the publication is close to consensus, it should please the Federal Reserve but is unlikely to be a factor that can influence the decision for a substantial policy shift next week. If CPI were revised upwards (which would be a negative surprise), the chances of a more significant cut from the Fed would likely be significantly reduced by the market, possibly leading to USD appreciation.
Łukasz Zembik Oanda TMS Brokers
Source: https://ceo.com.pl/kluczowe-dane-makro-przed-posiedzeniem-fomc-inflacja-cpi-i-ppi-zdecyduja-o-ruchach-fed-16461
