Investors are reassessing their expectations for aggressive Federal Reserve interest-rate cuts as the U.S. economy continues to display resilience. September saw the strongest job gains in six months, signaling that growth momentum in the world’s largest economy remains intact. This economic vigor, coupled with a potential resurgence in inflation, is poised to strengthen the U.S. dollar while putting downward pressure on safe-haven assets like gold.
This week’s agenda is set to provide further clarity on the Fed’s path forward, with the release of the minutes from the September policy meeting and the latest consumer price index (CPI) data. Analysts anticipate that U.S. inflation likely moderated at the close of the third quarter, a development that could prompt the Federal Reserve to opt for a smaller rate cut at their next meeting on November 6-7.
Market participants are increasingly recalibrating their expectations, suggesting that the Fed has room to pull back from the emergency rate cuts previously seen, especially as inflation trends toward the central bank’s 2% target. Despite the softening inflation outlook, investors remain cautious given the complex interplay between economic data and global risks.
On the geopolitical front, oil prices dipped as traders considered Israel’s possible retaliation against Iran following last week’s missile attack. U.S. President Joe Biden has urged restraint, discouraging a strike on Iran’s oil fields, which produce a significant share of the global supply. The prospect of heightened tensions in the Middle East adds another layer of uncertainty to the global economic outlook.
Looking ahead, U.S. CPI data for September the final inflation reading before the upcoming presidential election will be released on Thursday. This figure could heavily influence both monetary policy and political discourse. Also on the radar are speeches from New York Fed President John Williams and Richmond Fed President Thomas Barkin, who are set to provide further insights into the economic outlook and the Fed’s policy stance.
As investors weigh the balance between solid economic fundamentals and ongoing global risks, the market remains on edge, with shifts in inflation, interest rate expectations, and geopolitical developments likely to drive near-term volatility.