Federal Reserve Meeting and Job Report Add Uncertainty to the Week’s Economic Outlook

Amidst the Federal Reserve’s 18-month effort to raise interest rates to their highest point in this century, Chairman Jerome Powell has emphasized the importance of being “data-dependent.” However, the coming week presents a dilemma for the Fed. Should policymakers consider the previous week’s report, which indicated that the nation’s economy exceeded expectations by growing at a 4.9% rate in September, or should they focus on the upcoming job growth report for October, scheduled for release after the Fed meeting on Tuesday and Wednesday?

This week, there is a wealth of data that could reveal whether the economy’s recent robust performance has continued into the fourth quarter or if it is starting to feel the strain of rising interest rates. On Tuesday, two reports on home prices for August are expected to show stability, despite the pressure from high mortgage rates. Existing home inventory shortages have maintained elevated prices, while new homes have seen a decline in pricing.

Furthermore, the Conference Board’s consumer confidence report for October is expected to reflect continued consumer concerns about the economic outlook and inflation.

Wednesday marks the beginning of the job data onslaught, with private payroll firm ADP releasing its monthly employment survey for October. Analysts predict a rebound in job creation to 150,000 after September’s disappointing 89,000. Following this, the government will release a report on job openings, with economists anticipating a drop to around 9.3 million from the prior period’s 9.6 million.

In addition to the Fed’s decision on interest rates, Wednesday will also bring the Treasury Department’s announcement of how much it intends to borrow in the quarter to fund government spending. The bond market is on edge due to record debt issuance, which is raising concerns about the government’s borrowing costs as bond yields have surged.

“We expect the Federal Reserve’s Open Market Committee to keep the target rate range for the federal funds rate unchanged at 5.25%-5.50%,” said Sam Bullard, managing director and chief economist for Wells Fargo’s corporate and investment banking group, noting recent improvements in inflation. However, Bullard adds that despite these positive developments, there is uncertainty, and the FOMC may keep its options open for further tightening.

Chris Diaz, co-head of the global fixed income group at Brown Advisory, notes that the bond market is facing multiple challenges, including adjustments to the Fed’s new policy of higher interest rates and the government’s growing fiscal situation, which necessitates increased debt issuance.

Thursday will see limited economic activity, with only weekly unemployment claims to monitor. The week will culminate with the Labor Department’s monthly jobs report on Friday, expected to show the creation of 190,000 jobs. However, last month’s figure significantly exceeded expectations at 336,000, prompting analysts to watch for signs of a more robust hiring trend.

Throughout the week, earnings reports from key companies like McDonald’s and Apple will be closely watched, along with developments in the bond market. Additionally, the new House speaker, Louisiana Republican Mike Johnson, may impact the looming budget deadline of November 17, as government operations rely on a stop-gap funding measure, and Johnson’s actions may have significant consequences.

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