This week, all eyes are on the October inflation data in the United States, making it the economic highlight for markets, economists, and policymakers. The Federal Reserve’s interest-rate policy outlook relies significantly on consumer inflation data, as it plays a vital role in determining the need for interest-rate hikes.
Additionally, this week’s economic reports and events, including retail sales figures, speeches by Federal Reserve officials, a meeting between President Biden and President Xi Jinping, and the threat of a government shutdown, will have a significant impact on market sentiment and policy decisions.
Inflation Expectations:
Following a trend of decreasing inflation since summer, economists are cautious about the sustainability of this progress. Many believe that the previous improvements in inflation were the “low-hanging fruit” and that it will be challenging to reach the Federal Reserve’s 2% target.
Fed Chairman Jerome Powell has expressed his concern about inflation “head fakes,” highlighting the central bank’s cautious approach. Economists predict a moderate rise in headline Consumer Price Index (CPI) of 0.1% for October, driven mainly by a decline in gasoline prices. On a year-over-year basis, inflation is expected to rise at a rate of 3.3%.
October Retail Sales:
The outlook for consumer spending remains uncertain, with economists expecting retail sales to weaken in October, declining by 0.1% compared to a substantial jump of 0.7% in September and 0.8% in August.
Despite above-trend job growth and rising incomes, economists speculate that consumers may be running out of excess spending power built up during the pandemic. The performance of retail sales in October will provide insight into the strength of consumer spending and its implications for the overall economic outlook.
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Speech by Chicago Fed President Austan Goolsbee:
As part of a series of public remarks from Federal Reserve officials, Chicago Fed President Austan Goolsbee’s speech at the Detroit Economic Club garners attention. Having joined the Fed at the beginning of the year, Goolsbee’s views carry weight and his remarks will be closely monitored.
Goolsbee’s ability to make accurate predictions about inflation and unemployment, as demonstrated in recent speeches, adds to his credibility. Moreover, Goolsbee’s potential candidacy for Fed chair in the future increases the significance of his views.
Biden-Xi Meeting at the APEC Summit:
President Biden and Chinese President Xi Jinping are set to meet for the first time in a year at the Asia-Pacific Economic Cooperation summit in San Francisco. While it’s unlikely that these talks will have immediate market-moving implications, the Biden administration seeks face time with President Xi to establish lines of communication and convey important messages.
The increasingly strained economic relationship between the United States and China will likely be a topic of discussion.
Threat of Government Shutdown:
Friday marks the deadline for Congress to pass legislation to maintain government funding and avoid a shutdown. The new House Speaker, Mike Johnson, has proposed a two-step government spending plan to keep operations running until early next year. Moody’s Investors Service recently lowered its outlook on the U.S. credit rating to “negative,” adding urgency to the need for a congressional deal.
However, market analysts believe the chances of a government shutdown have slightly decreased following this development, as it is in the best interest of House Republicans to avoid market skepticism by proving their ability to handle the continuation of government funding.
Conclusion:
The October inflation data remains the primary focus in Washington’s economic radar this week, as it carries significant implications for the Federal Reserve’s interest-rate policy outlook.
Additional attention will be directed towards retail sales figures, speeches by Federal Reserve officials, the meeting between President Biden and President Xi Jinping, and the looming threat of a government shutdown. The outcome of these events and reports will shape market sentiment, policy decisions, and economic expectations in the coming weeks.
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