A look forward at the October 7 week shifts the focus from one side of the Fed’s dual mandate to the other, i.e. from the employment data to that for inflation.
The September data for the Final Demand Producer Price Index at 8:30 ET on Tuesday, Consumer Price Index at 8:30 ET on Thursday, and Import Price Index at 8:30 ET on Friday. These are the last major inflation reports on the calendar before the PCE deflator for September is released on Thursday, October 31 at 8:30 ET. The headline inflation data is going to look more in line with the Fed’s 2% objective even as the measures excluding food and energy continue within reach of the symmetric target. Gasoline prices usually fall somewhat in September as refineries switch over to winter formulations. However, the attack on Saudi oil facilities forced prices up around mid-month, so prices at the pump may contribute to upward pressure in the CPI. This won’t be the case for the PPI which takes its read on energy prices early in the month which came before the attacks disrupted production. In the end, petroleum prices were up, but not as much as was feared in the immediate aftermath. There should be some impact for the Import Price Index, but only a modest increase in the fuels component. Also, the broad dollar index for goods firmed a bit in September from August but shouldn’t be a significant source of inflation for imports other than fuels.
The NFIB Small Business Optimism Index for September at 6:00 ET on Tuesday may be poised to turn lower for a second month in a row. With declines in manufacturing and slowing in services activity, and increased concerns about a possible recession, it would be no surprise if the NIFB index slipped further from the 103.1 in August after the 104.7 in July. Plans for expansion and spending are likely to have been pared back until it is clearer if the economy is resetting to a more modest pace of growth or if an outright contraction is on the way.
Consumer confidence has been shakier in the past few months, although consumers are still optimistic in terms of their spending. The preliminary October University of Michigan Consumer Sentiment Index for October at 10:00 ET on Friday should give a better idea if there has been a fundamental decline in confidence or if consumers’ attitudes are still buoyed by the robust labor market even as the near future looks less rosy.
The data on Job Openings and Labor Turnover (JOLTS) for August at 10:00 ET on Tuesday lags the fresher information from the Employment Situation by one month. It should confirm that labor market conditions are overall healthy with solid job openings, steady hiring, low layoffs, and active voluntary job leavers.
The minutes of the September 17-18 FOMC meeting at 14:00 ET on Wednesday may be less compelling in what they have to say about monetary policy than in what the Committee thought about the sudden demand for liquidity in overnight markets that emerged around mid-September, and what the FOMC considered the appropriate response. It may also drag balance sheet policy back into the forefront. Also possible is if policymakers gave consideration to creating a more permanent practice for overnight and term repurchase operations. As far as monetary policy goes, it will be a change to gauge just how severe the divide was and is among policymakers in regard to the September 18 rate cut and the possibility of future actions. As ever, there is the caveat that the minutes are three weeks old and may have been overtaken by events.
Chair Jerome Powell is on the schedule to appear three times early next week. The first time is on Monday at 13:00 ET to give brief remarks at the premiere of a documentary on Marriner Eccles. This is unlikely to produce much in the way of news. The second is when he addresses the NABE annual meeting on Tuesday at 13:50 ET to give “A View from the Federal Reserve Board of Governors” which could be more interesting to markets. Finally, he will join Kansas City Fed President Esther George (voter, hawk) on Wednesday at 11:00 ET in a roundtable session ostensibly on “labor market conditions, local banking, and other topics”. It is highly probable that monetary policy will feature heavily in the Q&A.
Minneapolis Fed President Neel Kashkari (voter in 2020, dove) has four appearances scheduled during the week, so expect a lot of talk advocating for more and bigger rate cuts. However, other policymakers are likely to be more circumspect in signaling their views. These include Chicago’s Charles Evans (voter, dove) and Dallas’ Robert Kaplan (voter in 2020, moderate).
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