NFP and PCE inflation awaited for vital clues after a neutral Powell
XM Group | Aug 30, 2023 11:12AM ET
Above-trend growth
The Fed’s current round of tightening has been widely characterized as one of the most aggressive in its history. Yet, the US economy is on course to expand by almost 6% annualized rate in the third quarter – quite remarkable for this late stage of the tightening cycle and an acceleration on the second quarter’s 2.1% pace. Powell told audiences at Jackson Hole that a continuation of this “above-trend growth” could warrant some further policy tightening.
Will core PCE follow CPI higher?
On inflation, Powell repeated that it remains “too high” despite the recent declines. Non-housing services inflation in particular is a big concern, saying “some further progress here will be essential to restoring price stability”.
Powell has set the bar high for a September rate rise, making it clear that the Fed will “proceed carefully” when deciding on further tightening. Nevertheless, should both the core PCE and payrolls data beat expectations, it will be hard to justify a pause. However, if the week ends with a mixed batch of readings, policymakers are more likely to wait until November to get a clearer picture on what’s happening to prices and the economy.
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