No Hike Next Week, but December Increase Looms

In A Nutshell: It’s a pretty light week ahead of next week’s Fed meeting, but rates are still hostage to geopolitical developments and to market views of the economic effects of AI.

Last Week’s Highlights

The biggest news last week was a fairly firm CPI inflation release, followed by a more innocuous PPI print the next day. Together, the two imply that core PCE inflation, the Fed’s preferred measure, will come in around 0.30–0.33% monthly, or 3.1% annually. That certainly makes it seem like the Fed has a way to go before getting back to target.

After the CPI release, markets briefly worried that the new data would cause a Fed rate hike at the October 28 meeting, but those fears quickly dissipated as traders turned their worries to the AI-driven growth story instead. Fed officials, including Chairman Warsh, spoke after the inflation data was released and signaled no rate hike next week. But a December rate hike is still very much alive and expected, especially since more timely alternative data suggest that the next set of jobs and inflation reports could continue to stoke fears of an overheated economy. Last week’s retail sales data was weaker, but it still showed that, adjusted for inflation, consumer spending rose 0.1% in September after a strong quarter.

Upcoming Attractions

This week is truly light in terms of economic data, with nothing on the calendar that should be market-moving. The Fed is also in its blackout period ahead of next Wednesday’s meeting, so there’s no Fedspeak to parse. That doesn’t necessarily mean rates won’t be volatile. Aside from geopolitical developments and shifts in market vibes, fairly innocuous data prints sometimes get over-interpreted when there’s little else to pay attention to.

There are a couple of housing data releases this week on the state of construction and supply, including tomorrow’s housing starts and permits data, which is expected to show a small increase in starts but a decline in permits. This morning’s builder sentiment data showed builder confidence falling to a 14-year low amid high rates, rising costs, and worsening labor market conditions.

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