Week Ahead: The Calm Before Another U.S. Inflation Storm
XM Group | Oct 07, 2022 07:51AM ET
An electrifying week is coming up, featuring another crucial US inflation report and minutes of the latest Fed meeting. Both will be key pieces of the puzzle for the dollar and risk assets, as traders grapple with whether the Fed will pause its tightening cycle anytime soon. Even in case of a softer inflation print though, this type of speculation seems premature.h2 Fed bets/h2
Investors have been playing with the idea that the Fed might pause its rate increases soon, because of worries the economy is about to roll over. The expected peak in interest rates has been revised down a notch while inflation expectations have declined severely, which allowed stock markets to stage a fierce comeback.
While some leading indicators such as housing and business surveys indeed point to a softer economy, this hasn’t been reflected in the ‘hard’ data yet. The labor market is exceptionally tight with fewer people filing for unemployment benefits in recent months, inflation is still running at four times the Fed’s target, and the Atlanta Fed GDPNow model suggests growth fired up in the third quarter.
A persistent slowdown in China could keep chipping away at the Australian and New Zealand dollars, which rely on Chinese demand to absorb their commodity exports.
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