The Federal Reserve has not been this unpredictable for a long time. However, markets are increasingly leaning towards a larger cut. Good data from the USA indeed justifies more cautious moves. The question arises, will the Fed want a stronger move before the elections?
Data from the USA
Yesterday’s data was a pleasant surprise for the market. Analysts had expected a monthly decline in retail sales of 0.2%, but they got a 0.1% increase. They also expected a monthly increase of 0.2% in industrial production, but received an increase of 0.8%. The readings are objectively good, data which should clearly strengthen the dollar against the euro. However, looking at the chart, the movement was short and not particularly impressive, to say the least, it was barely noticeable in the long term. The reason for this is expectations regarding the Fed’s decision on Thursday.
Waiting for Thursday
Quite unexpectedly, we have moved from expectations regarding the Fed’s September meeting (which still dominated a few days ago), to an expected cut of 0.5% from 0.25%. Strangely enough, it’s unclear why. It is certainly not due to macroeconomic data, as yesterday’s good results should rather push rate cuts further away. After all, if things are going well, the economy is not choking on expensive credit. There is also the issue of a letter from Democratic senators to the Fed. On one hand, it’s a rather strange form of pressure, on the other hand, surprisingly well prepared for such a letter. Sure, the Democrats could use lower rates and credit cost cuts in the campaign, but the example of Poland shows that this is not always enough to maintain power. It seems that there is more and more of a 0.5% cut in the prices. If a previously expected 0.25% cut occurred, we might expect a significant strengthening of the dollar.
Inflation in the UK
Since morning, we have learnt about two important price readings in the UK. Consumer inflation, consistently for the second month in a row, is at 2.2%. This is a level that allows the Bank of England to continue its policy of interest rate cuts. The second good news is the sharply falling producer inflation. Analysts expected a fall from 0.8% to 0.5%, but the final reading was 0.2%. This means that the pressure for price rises from the producers should decrease. This only confirms that the UK should continue its policy of interest rate cuts.
Today is a holiday in China and Japan, and in the macroeconomic data calendar, it is worth paying attention to:
2:30 PM – USA – data from the real estate market,
8:00 PM – USA – decision on interest rates.
Maciej Przygórzewski – main analyst at InternetowyKantor.pl
Source: https://ceo.com.pl/fed-nieprzewidywalny-jak-nigdy-dotad-czy-zdecyduje-sie-na-mocniejszy-ruch-przed-wyborami-38513
