US Dollar: Fed hiking path and data risks – TD Securities

TD Securities economists Oscar Munoz and Eli Nir see an October Federal Reserve hike as increasingly likely, with Fedspeak remaining hawkish and officials “expecting more hikes.” They highlight strong PCE inflation, modest ISM Manufacturing gains, and a softer September NFP with higher unemployment. The team expects two further Fed hikes, with policy decisions driven by incoming inflation data and labour-market resilience.

Fed path tied to inflation data

"Fedspeak also leaned hawkish last week with officials having lost confidence in inflation's progress towards target — expecting more hikes. Fedspeak this week will likely follow a similar tone, with Waller, Jefferson, Cook and Kashkari as key speakers to watch."

"PCE inflation should reflect the strong August CPI and PPI reports with headline at 0.38% m/m (3.8% y/y) and core at 0.32% m/m (3.4% y/y). Market attention will be on the BEA's annual revisions. Y/y inflation may not be revised lower as much as markets expect. Meanwhile, spending is likely to accelerate to 0.9% (0.5% real), reflecting strong retail sales."

"We expect the Fed to hike two more times(October and January). Inflation remains above target while risks are growing. At the same time the labor market has stabilized, with some signs of strengthening, and activity data has been robust. The economy can handle more restriction, and the Fed is now providing it. The evolution of inflation data will determine the extent and pace of hikes later in the cycle."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)