The Federal Reserve is poised to make a critical decision regarding the key interest rate next week, amidst a backdrop of a deteriorating labor market and delayed inflation data. Our civil servants from the Bureau of Labor BLS, under operating for the workforce policies, are again at work. They were on recess for over three weeks due to a government shutdown! Their initial assignment will be to deliver the September inflation numbers. These numbers were previously scheduled for release no later than October 15. That timely data is necessary for the U.S. administration to determine social security benefits for the coming year.
The Federal Reserve’s decision-making process will proceed with limited economic data, particularly as analysts suggest that the inflation data is unlikely to significantly influence the Board’s next steps. Commerzbank’s Antje Praefcke, an FX strategist, underscored the urgency for new inflation data. These job numbers will be a central barometer in the Federal Reserve’s future decision-making.
“This has a nice side effect for the Federal Reserve Bank, as it will then at least have current inflation data available for its decision-making next week.” – Antje Praefcke
The labor market’s recent downturn further complicates the Federal Reserve’s position. Instead, the latest labor statistics have recently reported a new record low in employment numbers. Consequently, there is increasing speculation that the Fed will be forced to lower interest rates further to spur economic activity. Praefcke added that it’s critical to have good labor market data. Yet, understandably, the Federal Reserve has been reluctant to raise rates amid evidence of a rebound towards full employment in recent months.
“Solid data on labor market developments would actually be more important for the Fed anyway, as it has been focusing more on its second goal, full employment, for several months now.” – Antje Praefcke
In light of the delayed inflation report, the Federal Reserve’s internal discussions may not yield drastic changes in interest rate expectations. The dollar will continue to build momentum with any more decisively positive economic data. We aren’t looking for major changes in monetary policy. Praefcke noted that while the dollar may respond positively following the release of pivotal data, “massive reassessments of interest rate expectations and thus a reassessment of the USD’s value are unlikely.”
“In short, the dollar is likely to pick up a little more momentum when at least one set of data that is decisive for monetary policy is published again.” – Antje Praefcke
As the Fed prepares for its meeting next week, it faces the challenge of making decisions based on incomplete and late data. With rate cuts expected, the direction is obvious—the inflation numbers aren’t going to change the complicated path to the next meeting. Yet, they will provide essential information for inevitable subsequent policy changes.