The Federal Reserve is about to release its Summary of Economic Projections (SEP). This release will be a surprise re-launch timed to their next scheduled monetary policy announcement. This report, which includes policymakers’ expectations for economic developments and monetary policy direction, will be made public just 24 hours before the Fed’s decision on interest rates. Due to the recent US government shutdown, the report is now two months overdue. It only covers September and October data.
As the Fed gets ready for this important announcement today, more employment-related data will be rolling out in the coming days. These three data points could dramatically shape market expectations about the Fed’s future monetary policy path through 2026. Even with most of the excitement surrounding the SEP, experts are unlikely to create a shocking change to policymakers’ decisions.
Understanding the Summary of Economic Projections
It’s absolutely critical for understanding the Federal Reserve’s view of the state of the economy and future path of interest rates. It describes the central bank’s longer-term expectations (or forecasts) for key economic indicators, such as GDP growth, unemployment rates, and inflation.
This one SEP in particular will give us some important clues as to how the Fed expects our economy to change in the coming months. Given the report’s reliance on data that is two months old at best, it might not matter. The Fed’s policy-making process is data dependent. If delayed, it may lead to insights that are less transformative.
“The case for a firmer USD is limited. The Greenback could receive some near-term attention should the data results be upbeat, but such gains are unlikely to be sustained in time.” – Valeria Bednarik
Analysts point out though, that the SEP has tradition for glossing over rosy forecasts of economic predictions. They caution that real market reactions will depend on what comes in the next data releases.
Employment Data and Its Implications
We’ll be watching this JOLTS Job Openings report very closely for signals of what’s happening to labor demand and dynamics more broadly in the US economy. The most recent JOLTS report still showed 7.227 million job openings in August — a sign that the labor market is still very active. This data is incredibly important, as it is a lagging indicator. Typically, it is released about one month after other labor force data.
The next batch of employment metrics to arrive should shape market expectations the most. These numbers will inform expectations for what the Fed will do next. Analysts believe that if these new data show robust job growth or increasing demand for labor, they could bolster the case for maintaining or tightening monetary policy.
As with many things, labor market conditions are inextricably linked to inflation trends. How the relationship of job growth to wage growth affects consumer spending in the economy and inflation is a critical balance to evaluate. Given that, shifts in the trends of job openings or hiring could affect people’s inflation expectations in the coming months.
Upcoming Monetary Policy Announcement
The Federal Reserve’s December monetary policy announcement is already being hotly anticipated by market participants. Days after the release of the SEP, the Fed will meet again. These policymakers will weigh today’s economy and determine whether interest rates should be raised or lowered.
Stakeholders know all too well what a change in policy can mean. Most experts believe that this SEP will do little to change the Fed’s decision-making procedures this time around. The Fed overwhelmingly operates off of real-time data. Most importantly, it doesn’t have to rely on projections made weeks or months in advance.
“From a technical point of view, the EUR/USD pair is neutral-to-bullish. The pair holds on to modest monthly gains and trades not far from its December peak.” – Valeria Bednarik
As always, the Fed remains vigilant to exogenous factors that may affect its policymaking. This means paying particular attention to macroeconomic trends and major geopolitical events that could impact labor market conditions.