FED: Likely Experiencing A Negative Demand Shock - Daly
SF Fed’s Daly has published an essay (link) on the likely negative demand shock hitting the economy and the need for a balanced approach to policy setting. Her remarks support her dovish leaning stance, having last week said she completely supported the October 25bp cut and wants to keep an open mind about cutting again in December (although she doesn’t have a voting role in either 2025 or 2026).
- The bottom line of analyzing wage developments: “We are likely experiencing a negative demand shock. Demand for workers has fallen —it just happened to be met with a nearly coincident decline in the labor supply.”
- “[U]nlike what many projected, trade rebalancing has not led to more broad-based and persistent inflation dynamics.6 Indeed, so far, the effects of the tariffs have largely been confined to goods, with little spillover into services inflation or inflation expectations, which remain relatively well-anchored around our target.”
- Concerning a wide range of productivity growth “We don’t want to work so hard to not be the 1970s that we cut off the possibility of the 1990s, losing jobs and growth in the process. That would be trading one mistake for another.”
- “The FOMC had vigorous debates about whether to react strongly to low unemployment and signs of rising inflation or take signal from emerging hints of a secular shift in productivity growth and the labor market. In the end, they took a balanced approach to policy, and we ended up with the roaring 90s and contained inflation.”
- “Getting policy right will require an open mind and digging for evidence on both sides of the debate. Clarity is there. You just have to look for it, regardless of where it leads.”
- She repeats that monetary policy is “modestly” restrictive.
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US: Trump Oval Office Announcement Underway Shortly
US President Donald Trump is shortly due to deliver an announcement in the White House Oval Office. LIVESTREAM The announcement is expected to relate to drug pricing and could follow a similar template to a recent pledge from Pfizer.
- The announcement will be Trump's first press remarks since a market-moving Truth Social statement earlier today in which Trump suggested calling off a meeting with Chinese President Xi Jinping and raising tariffs on China in response to new export controls from Beijing on rare earths. See earlier bullets here and here.
RATINGS: Moody's Completes Periodic Review Of Belgium, No Rating Action
No ratings actions for Belgium from Moody's, which is quoted in a press release on Bloomberg: "Moody's Ratings (Moody's) has completed a periodic review of the ratings of Belgium and other ratings that are associated with this issuer. The review was conducted through a rating committee held on 2 October 2025 in which we reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), and recent developments. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future."
- There had been some speculation there could be a ratings action - MNI wrote Thursday: "* Moody's on Belgium (Current rating Aa3, Outlook Negative): We expect Moody's to maintain their current stance in the absence of 2026 budget details."
MACRO ANALYSIS: US Macro Week Ahead: No CPI, But Plenty Of Pre-Blackout FedSpeak
Below is the week’s data schedule, with MNI’s annotation of whether or not data will be postponed.
- As we went to press, the Fed announced that next week's Industrial Production data will be postponed (was due to be published next Friday Oct 17) as the data “incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown.”
- We won’t be getting September CPI as scheduled on Oct 15, but at least the BLS announced it will publish the data on Oct 24.
- As such next week we’ll be looking at some under-covered data points, including the Redbook weekly and Chicago Fed’s CARTS retail sales data (in lieu of the Census Bureau retail sales report), with a little more focus than usual on regional Fed manufacturing indices (NY, Philadelphia).
- Once again, the dearth of tier-one data leaves Fed commentary in focus ahead of the pre-FOMC blackout period: highlights for us are Philadelphia Fed President Paulson making her first comments on monetary policy on Monday since being appointed in the summer, while as always Chair Powell bears watching on Tuesday (we also hear from Bowman, Waller, Collins, Miran, Schmid, and Musalem).
- Additionally we get the latest Beige Book which was already key given the FOMC was already increasingly focused on anecdotal information as it attempts to navigate murky economic waters.
