There are few “sure things” when it comes to economics. And yet interest rate traders are 100% convinced a cut is coming at the Fed’s next meeting.
Of course, this does mean markets may be setting themselves up for a world of pain if Jerome Powell and the Federal Open Market Committee (FOMC) are not as convinced by the data they’re seeing.
A few factors have prompted market confidence in a cut. The first is the labor market, which is looking considerably weaker than previously thought. A gamut of figures has painted this picture, from slowing hiring (payrolls added just 22,000 jobs last month) to a significant downward revision in roles last year (911,000 less than previously stated).
This means the FOMC’s attention may be forced back to the maximum employment side of its mandate, forcing it to relinquish some of its grip over stable pricing and inflation at 2%.
Indeed, the price stability side of the mandate may be faring a little better than previously expected. Yesterday, the Bureau of Labor Statistics shared the latest update to the producer price index (PPI), which often acts as a precursor to wider inflation trends. And unexpectedly demand edged down 0.1% in August, though prices excluding food, energy, and trade services rose 0.3%, the fourth consecutive increase.
