The US is publishing a wealth of major data points these days that are determinant for figuring out what the Fed will do next week. That will define the trajectory of the greenback for months to come. It’s a particularly fraught time for the dollar, as the days count down to the election, the outcome of which will likely impact forex as well.
As inflation approaches the Fed’s target, there is increasing risk of the jobs market facing trouble. Depending on the outcome of the election, the dollar could be strengthened or weakened by tariffs. Bond rates are already moving in anticipation, giving the dollar a boost. But that could all change depending on what the data says.
The Fed in a Tight Spot
Central banks don’t like to make waves around major political events like elections. With that in mind, the Fed will be holding its next meeting on Wednesday and Thursday, as opposed to the usual Tuesday and Wednesday. That’s because Tuesday is voting day, and with any luck, the results will be known on Wednesday. That way, the Fed can sit down to deliberate monetary policy with a better understanding of where fiscal policy is headed.
But, there is the chance – like last time – that the result won’t be immediately known, which could leave heightened uncertainty. Part of that might be resolved with some clear results in the upcoming data. For now, markets are hedging bets that former President Donald Trump will win against a generalized expectation that the Fed will be easing rates in the future as inflation normalizes and the jobs market weakens. If there is a major change in the data, those hedges will likely shift, and the dollar with them.
What to Look Out For
Thursday sees the release of the Fed’s preferred inflation measure, Core PCE Price index, which has been slowly inching down but still remains above the 2.0% target. What would be a surprise to the markets – and likely also to regulators – is if this measure were to suddenly increase substantially. Otherwise, an unchanged or slower growth rate would maintain the status quo.
September Core PCE price index is expected to come in on a monthly basis at 0.1% just like the prior month. The annual reading is also expected to repeat at 2.7%. Inflation is intimately related to economic growth, so there is a chance of a miss here after it was reported that the economy grew slower in the third quarter of the year than initially anticipated.
It’s About the Jobs
The consensus among analysts is that, barring a major change in the data, the FOMC has largely shifted its focus from inflation to the jobs market. This makes the upcoming NFP figures all the more important. Another blowout jobs report could give markets the impression that the Fed will not cut rates at the next meeting, which could give the dollar a substantial boost. But a retracement in the number of new hires could bring back the chance of more easing later in the year and weaken the dollar.
October Non-Farm Payrolls are expected to moderate to 180K, down from the 254K reported in the prior month. Though the private ADP measure earlier in the week was well above expectations, it is largely seen as not predictive of the final official result. The unemployment rate is expected to remain tick up to 4.2% from 4.1% while average hourly earnings are expected to be unchanged at 4.0%,