Oct 13, 2022
VOT Research Desk
Market Insights and Analysis
Despite the fact that the overall song has remained unchanged, Wall Street is eagerly awaiting the release of the consumer price index for September this morning.
The 8:30 a.m. ET data dump is anticipated to show a slight moderation in the headline number (to 8.1% from 8.3%) and a slight increase in “core” inflation (to 6.5% from 6.3%), which excludes food and energy.
The actual numbers are likely to continue indicating a decades-long price increase, so the average consumer does not need to be informed.
However, details are important to investors who are laser-focused on the data points that the Fed cares most about. As we saw in 2022, headline numbers can be skewed by as little as 3 percent, 4 percent, or even 5 percent.
The major indices (DJI, IXIC, and GSPC) are perilously perched at or close to their lowest levels in two years, adding to the risk of volatility. Market participants are looking ahead to the November 1 and 2 meetings of the participants of the Federal Open Market Committee, where the Fed is expected to raise interest rates by 75 basis points for the fourth time in a row, with an additional 50 basis points priced in for the meeting in December.
Expectations that the Federal Reserve would slow down its frantic rate hike pace by the end of the year were supported by Wednesday’s release of the minutes from the September meeting.”Would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook,” officials at the Fed stated.
To put it another way, the Federal Reserve will raise interest rates until something breaks, but it will try to avoid causing too much long-term damage to the economy.
The minutes revealed that many Fed officials were more concerned with the cost of taking too little action to bring down inflation than they were with the cost of taking too much action. As a result, any hopes for dovish undertones in the near future were largely dashed.
In order to combat inflation, the Federal Reserve has consistently stated emphatically that the central bank is de facto orchestrating a recession with higher unemployment rates and a cooling economy in the minutes: According to participants, in order to ease upward pressures on wages and prices, a softening in the labor market would be required.
Even though there is abundant evidence to suggest that the Fed’s actions already have a disproportionate impact on the poor compared to the rich. According to the minutes, spending is holding up “relatively well, especially among higher-income households.”According to the notes, households with low to moderate incomes are reducing their discretionary spending and shifting to lower-cost options.
In contrast to its central banker peers in the United Kingdom, where monetary and fiscal policies are disjointed and at odds, or Japan, where central bank intervention to support the yen failed in less than three weeks, with authorities there doubling down on the ultra-loose monetary policy, investors may take a little solace in the fact that the Fed is acting consistently with its messaging and holding the line.
Investors in the United States need to know when, not if, the Fed will reach its own breaking point and where the markets will be at that crucial juncture.
