By: Fiona Cincotta, Senior Market Analyst
The U.S. economy added 162,000 jobs in August against expectations of around 56,000, and the September Federal Reserve question is still open. U.S. inflation data is now what settles it, because rate pricing has split from the labor market and moved on central bank commentary instead. Expectations of a September Federal Reserve rate hike sat near 60% after the payrolls release, having been closer to 50% before it, with the unemployment rate unchanged at 4.1%. The U.S. dollar, meanwhile, finished the week lower despite the beat.
Fiona Cincotta, StoneX Senior Market Analyst, covers foreign exchange, equities and commodities across UK, European and U.S. markets, with more than 15 years spent analyzing them through both fundamental and technical lenses. Her work centers on macroeconomic policy and the data calendar that drives it, which is the ground the September Federal Reserve decision sits on.
The two U.S. inflation releases arrive in sequence rather than together, which gives producer prices the first read on the September Federal Reserve decision. Cincotta lays out the calendar plainly, noting that "on Thursday we've got PPI figures, and then we'll also then have to wait until Friday to get CPI data", with consumer prices expected at 0.4% month on month. That gap matters because producer prices feed into consumer prices with a lag, so Thursday sets the expectation that Friday either confirms or breaks. A hot reading would firm up the September case considerably, and as Cincotta puts it, "hot inflation is going to really raise those expectations surrounding a September Fed rate hike, particularly after we've seen this really strong jobs report". For traders positioned around the U.S. dollar, that means two separate risk events in 24 hours rather than one.
"His dovish remarks suggested that he'd seen progress in disinflation" [0:43], Cincotta says of Federal Reserve Governor Christopher Waller, whose comments pulled September pricing back toward 50% from around 60%. The sequencing is the interesting part. A payrolls print that came in at nearly three times expectations moved the market less than a single Federal Reserve voice talking about the direction of inflation, which tells you where the committee's uncertainty actually sits. Conversely, that also means the market is not treating the labor market as the binding constraint, so U.S. inflation data carries disproportionate weight into the meeting. Cincotta's read on where that leaves things is direct, "the September meeting is very much a live meeting".
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Fiona Cincotta, StoneX Senior Market Analyst
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