FED: Powell Keeps October Cut On Track, Notes Jobs Vs Activity Divergence (1/2)
Oct-14 17:24
In what is among the very last major FOMC communications before the pre-meeting blackout period begins Friday night, Chair Powell's commentary Tuesday largely maintains the status quo in terms of signalling another 25bp rate cut at the end of October.
- In his written remarks, he says "based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago" when of course they cut rates 25bp eyeing "Rising downside risks to employment". Though in a slightly less dovish note, "data available prior to the shutdown, however, show that growth in economic activity may be on a somewhat firmer trajectory than expected."
- In Q&A, Powell repeats his September commentary that "there really isn't a risk free path" with some danger of inflation persistence but "the labor market has demonstrated pretty significant downside risks as payroll jobs have declined in both the supply and demand for for labor has declined quite sharply".
- On the risks of easing: "if we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it. And if we move too slowly, there may be unnecessary, painful losses in the employment market."
- He echoes other speakers including Gov Waller last week in saying that the activity and labor market data aren't necessarily telling the same story, and future policy could depend on how that discrepancy plays out: "Even even subsequent to the September SEP, we've seen economic activity data which are surprising to the upside... you do have a bit of a tension there between the labor market data that we see very low levels of job creation. And yet people are spending. So economic activity is strong. And... we're going to have to see how that plays out.... if economic activity were stronger, then that would tend to support labor market activities in hiring. And so we'll have to see how that works out."
- Commenting on nonfarm payroll "breakeven" growth, Powell notes that a figure "I'm not going to try to give you a pinpoint number, but... the standard error around these things is, you know, 50,000 plus or minus, something like that... I think the range of plausible numbers... probably does go below zero... it's clearly come down a great deal."
- He points to the Beveridge Curve to suggest that "further declines in job openings might very well start to show up in unemployment."
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
Sep-12 21:45
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
Sep-12 21:16
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Sep-12 21:07
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
