The US data docket’s pretty light this week. If there’s a highlight it’s plainly retail sales.
Markets seem pretty comfortable with their Fed wagers despite demonstrable upside in the last jobs report and another warm read on core inflation. Frankly, I don’t see the case for a follow-up rate cut. At all. I don’t think there is one. I think this is a Fed which made the right decision to go big in September with a preemptive 50bps insurance cut, but which erred in telegraphing cuts at every meeting down to neutral.
In an interview with The Wall Street Journal, Raphael Bostic “kept the door open” (as Nick Timiraos put it) to a pause in November. The CPI release, Bostic told Nick, suggests the Committee should at least entertain the idea of skipping a cut at next month’s policy gathering.
Suffice to say no one’s buying that just yet, and I don’t think the Fed intends for anyone to buy it. Rather, I think Jerome Powell merely wants markets to be aware of the outside chance, however small, that the Committee could skip November. In other words, the Fed wants that optionality. Indelicately: They should’ve thought about that before they released a dot plot which promised 100bps of total cuts for 2024.
Powell would insist, as he always does, that the dot plot’s not a plan, let alone a promise. And as he emphasized a year ago next month, the dot plot can go stale pretty quickly. The juxtaposition between June’s SEP and September’s is a testament to that. But as ever, there’s an air of farce to the whole thing. The Fed’s saying this: Here’s a set of forecasts for the price of money by the people who set that price, but don’t read too much into it. That’s a ridiculous proposition.
Anyway, the retail sales print, due Thursday, will probably show Americans kept spending last month. Recall that the big revisions to the BEA’s income series changed the entire narrative around saving and spending. The figure below, from BMO’s Ian Lyngen, gives you some context for those revisions through the lens of the saving rate.
“[I]t’s notable that the new version of the series shows a much smaller decline from the cycle peak than the older version,” Lyngen and his colleague Vail Hartman wrote, adding that “the updated series shows the savings rate peaking in January 2024 at 5.5%, and it is now just 0.7ppt below that level [whereas] the old series peaked at 5.3% in May 2023, and fell by 2.4ppt.” They also noted that the trajectory of the decline in 2024 is far less pronounced than it was in the unrevised data.
During his NABE remarks on September 30, Powell spent a good deal of time editorializing around those revisions. The gist of his message was simple enough: Americans have the capacity to keep spending. That’ll probably be on display in this week’s nominal sales update. The control group, BMO’s Lyngen observed, is running at a one-year high when measured on a three-month annualized basis. September’s control group print could bolster already robust GDP tracking for Q3. The advance read on Q3 growth’s due later this month. It won’t make the case for rate cuts.
Also on the schedule this week: The New York Fed’s consumer survey, import prices and the first of this month’s housing releases, including NAHB sentiment (covering October) and starts/permits (covering September). The jobless claims release will receive plenty of attention following last week’s large increase, but to reiterate: The incoming labor market data will be very difficult to parse in the weeks ahead given hurricane distortions.
Across the pond, the ECB will almost surely cut rates for a third time. This is a bit of a head-scratcher. I don’t have any special insight on the decision calculus, but the GC appears to have decided that a spate of relatively poor soft data, and the length of time between now and the next policy meeting in December, justifies another cut just to be on the safe side.
As the figure shows, headline inflation in Europe’s actually below target now.
Just a few weeks ago, at the September meeting, the bank all but said an October cut was out of the question. One policymaker insisted as much explicitly. Now, a cut’s all but guaranteed.
“There hasn’t been any hard macro data released since the ECB’s September meeting,” ING’s Carsten Brzeski remarked. “The fear of a further weakening of economic momentum is purely driven by sentiment indicators — the same sentiment indicators that not too long ago the ECB described as being not entirely reliable.”
