Fed rates: Powell’s latest action at risk with oil and auto strikes

Fed rates: Powell’s latest action at risk with oil and auto strikes

After the European Central Bank, it is the turn of the Federal Reserve led by Jerome Powell to do so this week Big interest rate announcement.

The Federal Open Market Committee, the monetary policy arm of the US central bank, is scheduled to meet tomorrow to decide what to do and then issue a ruling the day after tomorrow. Wednesday 20 September, at approximately 8.15pm Italian time.

On the calendar, in the trading week that just opened, there will not only be a Fed.

In fact, we are also waiting for announcements on interest rates The Swiss Central Bank (Swiss National Bank), the Bank of England (BoE), and the Bank of Japan.

All organizations will need to evaluate, before making their big announcements, The trend and outlook for both inflation and economic growth, At a time when the anomalous rise in prices as a result of the war in Ukraine has not yet been tamed.

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Federal Reserve Bank: Dilemma between unemployment and inflation. But we are not betting on anything

As for the Federal Reserve Bank, led by Jerome Powell, if the US employment report has fueled, on the one hand, hopes for a halt to the increases in interest rates announced by the central bank so far, with the surprise it represents… Unemployment rateOn the other side Key inflation data in the US has raised doubts that talk of a standstill is somewhat premature.

And Federal Reserve Chairman Jerome Powell himself, In his speech Jackson Hole, He had warned that the central bank would be “willing to raise interest rates further” in the wake of inflation, which remains “very high”.

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However, the markets are not betting anything on interest rates, At least for The Federal Open Market Committee meeting next September.

Speculation is also swirling around another rise that could arrive by the end of 2023.

Economists polled by Reuters, as well as traders, believe that Powell and co. will confirm the cost of American funds, Then move on to another step later.

From a Reuters poll It turns out that more than 95% of the economists interviewed, Or 94 of 97, They believe that the central bank will maintain the status quo at its next September meeting The current range, between 5.25% and 5.50%, In line with market expectations.

The percentage is close to 20% 17 of 97, However, he believes the Fed will choose to tighten monetary policy again by the end of this year.

“Although we still expect the Fed to confirm interest rates at its September 20 FOMC meeting, we would not be surprised if most of its officials… A further increase is expected by the end of the year, at the updated plot point,” He told Reuters
Brett Ryan, chief US economist at Deutsche Bank, noting that the day after tomorrow, the Federal Open Market Committee will also publish its new bullet chart, that is, the document containing bankers’ expectations about the direction of interest rates, Which is disclosed on a quarterly basis.

Inflation: Be aware of the effects of auto strikes and rising oil prices

“in the United States of America, Expectations are that the Fed is on guard Although the commentary risks are leaning a bit more towards the hawkish side following August’s stronger than expected inflation report – he commented in today’s note dedicated to markets. Gabriel Debach, Market Analyst at eToro – The underlying increase was driven by an acceleration in services inflation, especially airfares, but overall underlying price pressures appear to have remained slightly higher than expected at the start of the third quarter. In this context, markets will be watching how FOMC participants assess the need for further increases.

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“Economists have defined the labor market as flexible, and the Fed itself feels uncomfortable in its monetary policy due to this phenomenon – noted Diebach – It should be noted that such flexibility does not necessarily translate into well-being, as evidenced by the fact that during 2023 many sectors , From Hollywood professionals to nurses, from factory workers to Starbucks baristas, they have crossed their arms“.

In fact, “in the United States, Workers are witnessing record levels of strikes. Last month alone, 4.1 million workdays were lost due to strikes, calculated by multiplying the number of workdays lost in each strike by the approximate number of workers participating. “This represents the largest amount of downtime since August 2000.”

In this situation, and with regard to inflation, the analyst warned that “the situation has become more overshadowed.”The rise in oil prices, which exceeded $90 per barrel, reaching their highest levels last year.”.

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Diebach noted that the fear of a new wave of inflation was also reflected in the US Treasury market: “The increase in Treasury yields continues to affect securities, With the benchmark 10-year yield rising to 4.3%“The analyst said.

Fed: Will Powell announce a hawkish or hawkish stance?

For his part, in an interview with CNBC Quincy Crosby, global strategist at LPL Financial, said he believes that at the upcoming September meeting, ““For expectations about the interest rate decisions that will be made at the November and December meetings, the manner in which the Fed announces the pause will be crucial.”

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Specifically, “financial markets will focus primarily on the truth Whether the pause will be presented with a dovish or hawkish tone.

Crosky also spoke about the impact of strikes called by workers in the auto sector on inflationary pressures, saying that he expected prices to rise. linked to the rigidity of the labor market, But also to the stance decided by the sector’s workers:

Crosby explained that a workforce strike at giant automakers in the United States could actually take place Further price increases, Due to the new proposals (wage increases) that the sector giants will present to calm employee anger.

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In this regard, Gabriel Diebach stated that “last week US stocks fall sharply.” Specifically because of the risks associated with a UAW strike in the auto industry, also adding that “This is the first time, in the 88-year history of the Union, That the entire trinity of Detroit’s major automakers is being targeted at the same time.

“This situation – continued the market analyst at eToro – is a cause for particular concern, because it puts nearly half of US auto production at risk. However, what stands out most clearly is General economic distress caused by inflation in the labor market.”

Various blockades and work stoppages also threaten to trigger others Another shock on the supply side Which, as evidenced by the reopening of the economy from lockdowns imposed during the Covid pandemic, is pushing inflation rates higher.

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