FED: Richmond's Barkin: Economy Resilient, Policy Now Within Neutral Ranges
Richmond Fed President Barkin (not a 2026 FOMC voter but votes in 2027)'s speech on the economic outlook Tuesday is typically guarded on the expected path of policy rates. We would still expect Barkin is in line with the FOMC 2026 median implying 1 rate cut this year though he's not in any rush to ease.
- Barkin takes a measured approach in his speech, noting that after some "insurance" cuts, policy is close to neutral, with the dual mandate variables finely balanced.
- Barkin says "As the labor market has softened in the past year, the FOMC cut rates further in the fall and to a level now within the range of its estimates of neutral. Think of it as taking out a bit of insurance. But going forward, policy will require finely tuned judgments balancing progress on each side of our mandate. Unfortunately, for the last three months, we’ve been operating without data or with low-quality data that are hard to put much weight upon. That makes our task a bit more challenging. So, I’m looking forward to digging in and learning as clean data start to come in over the coming weeks."
- "Both sides of our mandate bear watching. Unemployment remains low on a historic basis but has ticked up. Inflation has come down but remains above target. With the hiring rate low, no one wants the labor market to deteriorate much further; with inflation above target now for almost five years, no one wants higher inflation expectations to get embedded. It’s a delicate balance."
- He doesn't see much of an impact from tariffs on consumer prices, largely because "consumers, exhausted by higher prices, have pushed back". He also seems concerned that demand and job growth are "narrow" (AI spending/wealthy consumption, and private sector job growth dominated by healthcare/social assistance). Overall though he seems to take the view that the economy is resilient until proven otherwise, especially as fiscal stimulus is on its way and "uncertainty is bound to diminish" vs a "foggy" 2025.. "resilience has been enabled by strong underlying dynamics. Consumers have jobs. Real wages are increasing. Asset values keep growing. Corporate earnings and earnings outlooks remain strong. In those circumstances, it’s hard to imagine consumers and businesses moving to the sidelines."
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USDCAD TECHS: Bull Channel Breakout
- RES 4: 1.4140 High Nov 5 and a key resistance
- RES 3: 1.4131 High Nov 21
- RES 2: 1.4051 High Nov 28
- RES 1: 1.3939/4016 Low Nov 28 / 20-day EMA
- PRICE: 1.3865 @ 16:35 GMT Dec 5
- SUP 1: 1.3853 Intraday low
- SUP 2: 1.3840 50.0% retracement of the Jun 16 - Nov 6 bull cycle
- SUP 3: 1.3812 Low Sep 23
- SUP 4: 1.3779 Low Sep 22
A bear theme in USDCAD remains intact and Friday’s strong sell-off reinforces a bear theme. The pair has breached an important support at 1.3942, the base of a bull channel drawn from the Jul 23 low. The break highlights a stronger bear cycle and signals scope for an extension towards 1.3840 next, a Fibonacci retracement point. Initial firm resistance to watch is 1.4016, 20-day EMA.
LOOK AHEAD: US Week Ahead: FOMC Decision Dominates, Post Shutdown Data Catch-Up
- Next week’s US calendar is dominated by the FOMC decision on Wednesday, with a third consecutive 25bp cut almost fully priced.
- Expect it to be a contentious meeting however, with many arguing for a pause not least whilst they’re still relatively in the dark on key official data releases following the government shutdown.
- Fed Chair Powell opted for a surprisingly hawkish tone at the late October press conference, highlighting a deeply divided committee on prospects for another cut in December.
- The “fog” had appeared to win out until NY Fed’s Williams, a senior permanent voter, gave unusually explicit guidance on still seeing room “for a further adjustment in the near term”. With no pushback from FOMC members or media briefings, it appears this message has approval from the core of the FOMC which should be enough to see a rate cut this month. The likely catalyst was the further increase in the unemployment rate to 4.44% back in September, although subsequent tracking suggests stabilization and jobless claims data don’t show any signs of deterioration.
- We’ll be looking for the number of hawkish dissents (we’d be surprised if anyone joins Miran dissenting for a 50bp cut) and expect a greater number to object to a cut in the 2025 dot plot, whilst the distribution of dots for 2026 should be in greater focus.
- As for the economic projections, we expect upward revisions to GDP growth but downward revisions to near-term core PCE inflation with tariff passthrough proving less severe than previously feared.
Aside from the Fed, we also receive two months worth of JOLTS data along with other delayed releases as the shutdown data backlog is slowly caught up.
AUDUSD TECHS: Bullish Impulsive Wave Extends
- RES 4: 0.6723 High Oct 21 ‘24
- RES 3: 0.6707 High Sep 17 and a key resistance
- RES 2: 0.6660 High Sep 18
- RES 1: 0.6649 Intraday high
- PRICE: 0.6630 @ 16:32 GMT Dec 5
- SUP 1: 0.6580/6533 High Nov 13 / 20-day EMA
- SUP 2: 0.6517 Low Nov 27
- SUP 3: 0.6466/21 Low Nov 26 / 21
- SUP 4: 0.6415 Low Aug 21 / 22 and a bear trigger
A strong impulsive bull wave in AUDUSD remains intact, having printed 10 consecutive sessions of higher highs. Recent gains have cleared a number of important short-term resistance points, strengthening a bull theme and highlighting scope for a continuation higher. Today’s rally has resulted in a breach of 0.6640, 76.4% of the Sep 17 - Nov 21 bear leg. This opens 0.6707, the Sep 17 high and key resistance. Key support to watch is at 0.6533, 20-day EMA.
