Here’s our weekly economic update for the week of September 8.
In A Nutshell: There’s much more uncertainty than usual heading into next week’s Fed meeting–and it all comes down to this week’s inflation data. But that’s not all that’s keeping rates high and volatile; oil prices have also risen on renewed tensions in the Middle East.
Last Week’s Highlights
Last week provided some conflicting signals on the upcoming Fed meeting. Governors Waller and Barr and New York Fed President Williams all provided commentary that appeared to contradict the fairly hawkish tone of Chairman Warsh’s Jackson Hole speech. Waller and Williams, two influential FOMC members who vote at every meeting, both pointed to recent improvements in inflation–but also said they would consider a hike at next week’s meeting if the August CPI reading is high.
Friday’s jobs report subsequently came in on the hotter side. 162,000 jobs were created in August, about three times as many as expected, though some of the excess was really just a normalization following deceptively large declines in July. Overall, the labor market looks reasonably healthy, which means the threshold for inflation that would lead to a Fed hike is now slightly lower.
Exacerbating the increase in rates last week was renewed fighting in the Middle East. Oil prices have rebounded to the levels we saw in late spring/early summer.
Upcoming Attractions
There’s little economic data on the calendar this week until Thursday and Friday’s PPI (producer prices) and CPI (consumer prices) inflation reports. While the Fed uses core PCE inflation (released later in the month) as their official metric, the earlier PPI and CPI releases share all of the same raw inputs as PCE. The difference between CPI/PPI and PCE is category weights and a few other statistical nuances.
Given the amount of disagreement on the committee right now, whether the Fed hikes next week likely comes down to whether the implied PCE measure of monthly core inflation for August is 0.1%, 0.2%, or 0.3%. It would be difficult to imagine such a divided committee hiking if it’s 0.1%. Likewise, it would be difficult to imagine them not hiking if it’s 0.3%. But if it’s 0.2%, as forecasters are expecting, then it will be a close call, and will come down to the unrounded number as well as the details of the report. It’s worth noting that the Fed is now in its blackout period, and will not comment before their meeting.
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