The continued resilience of employment and consumption in the US economy strengthens expectations that the Fed may keep interest rates at high levels for a longer period.
According to Bloomberg and Reuters surveys, economists expect non-farm payrolls in the US to increase by approximately 90,000 and 100,000 respectively in September. The unemployment rate is estimated to remain between 4.1% and 4.2%.
The strong performance in consumption is also expected to continue. According to Bloomberg’s forecast, real personal consumption expenditures in the US could increase by 0.5% on a monthly basis in August. If this forecast materializes, it would be the strongest monthly increase in over a year. The resilience in employment and consumption indicates that demand in the US economy has not yet cooled significantly, providing room for the Fed to maintain its tight monetary policy.
On the other hand, inflationary pressures remain a significant constraint for the Fed. The market expects both headline and core personal consumption expenditures (PCE) price indexes to accelerate their monthly growth in August. The annual growth in core personal consumption expenditures (PCE) previously stood at 3.3%, exceeding the Fed’s long-term inflation target of 2%.
The Fed raised its policy rate by 25 basis points this month, marking its first rate hike in three years, and signaled that further increases could be on the agenda later in the year. With recent economic data, market expectations are rising for another 25 basis point rate hike in October.
*This is not investment advice.