Yet the Federal Reserve’s constant re-evaluation of the U.S. economy underlines the deepening lack of confidence in our continuing unraveling jobs market. The entire labor sector is beginning to cool off. As such, the Fed has set the stage to deliver at least a 25 basis points cut at the next Federal Open Market Committee (FOMC) meeting on October 29th. Recent data from the Beige Book indicates slowing economic activity, leading analysts to speculate about the implications for the broader financial landscape.
In September, analysts are anticipating a small increase in the Consumer Price Index (CPI). For February, they are looking for a 0.4% increase in headline CPI and a 0.3% increase in core CPI. Headline inflation is expected to continue its run above core inflation. This is the most important data point, since it will set the stage for the Fed’s decision-making with respect to the direction of monetary policy over upcoming months.
Labor Market Weakness Raises Concerns
The Feds main focus is the condition of the jobs market. As home construction remains lackluster and recent reports show private sector job growth cooling, it begins to threaten the broader economic recovery. If business creation continues to decline, consumers will eventually spend less, dragging down GDP growth as well.
The Beige Book, a publication of the Federal Reserve, has corroborated widespread, significant shifts across industries. Now, most of them are feeling the sting of a sharp downturn in work. This development raises questions about the sustainability of the current economic expansion and underscores the Fed’s need to respond with appropriate monetary policy adjustments.
With all of these trends in mind, market analysts are listening to every word spoken by the Fed, and watching every move they make. Most don’t expect the central bank to give much priority to protecting the labor market. They believe a rate cut would do a pretty good job at stimulating new, counter-cyclical economic activity.
Technical Analysis of Market Movements
From a technical perspective, the S&P 500 (SPX) faces critical support and resistance levels that market participants should watch closely. Our analysts have identified an impending bullish diagonal support line in the short-term. If this line does break, it can usher in even further drops to the 6,500–6,520 range. On the other hand, opposition-area levels are defined from 6,670 to 6,700.
Investors, by contrast, are betting on the shift in monetary policy. They’re already pricing in at least 75bps of further easing through the end of the year. The upcoming FOMC meeting will almost certainly produce a 25 basis points rate cut. This historic decision is poised to broadly affect market sentiment, trends in the capital markets and trading strategies.
In light of these factors, traders and investors are advised to stay alert to movements in the market as well as macroeconomic markers. By learning how these factors are interrelated, we can gain a great deal of insight into upcoming movements of the market.
Implications of Upcoming Economic Data
Next month’s CPI print for September will almost certainly be the determining factor. It will establish precedent for the actions of both the Fed and for market participants. Another hotter-than-expected CPI would put a big spanner in the Fed’s plans for rate cuts. Conversely, a number below expectations could build the case for a rollback of such measures.
The Fed’s commitment to an easing cycle indicates its intention to foster a more conducive environment for economic growth amid uncertainties in the labor market. Investors are acutely aware that any changes in monetary policy may have negative cascading effects on equity markets, the economy, and credit conditions.