Prior Week Summary
A very busy few days in the markets last week will help to set the stage for the highly anticipated meetings at the Fed and the Bank of Japan this week. As the Fed grapples with its dual mandate and the relative pros and cons of potentially tightening monetary policy this week, updated readings on consumer price inflation increased marginally. The Labor Department reported on Friday that prices increased 0.2% in August on a seasonally adjusted basis. Excluding the more volatile components of food and energy, prices rose 0.3% in August, bringing the yearly increase to 2.3%. The report detailed that while inflation pressures appear to be rising, a large contributing factor to this month’s report was attributable to a 0.9% gain in the prices for medical care services.
The gain of this particular component of consumer prices, which includes the cost of health insurance, doctors visits, and other medical costs registered its largest increase since 1990. While gains in CPI are a good sign for the economy, the Fed’s preferred measure of inflation, the core personal consumption expenditures deflator, which is calculated using a different basket, continues to lag the Fed’s target.
As we go to print this morning, market pricing suggests that traders are not expecting the Fed to move this week, as the Fed Funds futures markets indicating only a 20% implied probability of a hike.
The Look Forward
All eyes will look towards the Fed and the Bank of Japan this week for market direction. In addition to the announcements expected from the central banks, the US will also get updated information on the state of the manufacturing economy, the housing markets, and the labor markets. Good luck.