1 November 2024

Understanding the Impact of Today's FOMC Speakers and Minutes on the US Economy

Today's FOMC speakers and minutes are crucial for understanding the US economy's direction, with insights on monetary policy and market expectations.

Understanding the Impact of Today's FOMC Speakers and Minutes on the US Economy

In recent trading sessions, Wall Street displayed mixed results, primarily influenced by disappointing news from a recent meeting in China regarding stimulus measures. The China A50 index plummeted by 10%, continuing its downward trend at today’s market opening. This negative sentiment has spilled over into European markets, driven by concerns about decreasing demand, particularly in the luxury goods sector.

As we look at the US economy, today marks the presence of more Federal Open Market Committee (FOMC) speakers, but the spotlight will be on the upcoming Consumer Price Index (CPI) report scheduled for Thursday and the commencement of the earnings season on Friday, which are anticipated to be significant events for the week.

The FOMC meetings are pivotal in the financial landscape, where crucial decisions regarding U.S. monetary policy are made. As the policy-making body of the Federal Reserve, the FOMC aims to foster maximum employment, stable prices, and moderate long-term interest rates.

During these meetings, each of the 12 regional Federal Reserve Banks shares insights on economic conditions in their respective areas, offering a comprehensive overview of the U.S. economy. Following dovish comments from Fed Chairman Jerome Powell regarding future monetary policy and last week's robust non-farm payrolls (NFP) data, traders are keen to hear insights from the FOMC speakers today. They will be particularly attentive to any indications about the potential size of the next rate cut anticipated in the upcoming FOMC meetings in November and December.

Recent shifts in market expectations have seen a move from anticipating a 50-basis point cut to a more likely 25-basis point reduction, with even the possibility of no cut gaining traction. Consequently, market activity has been somewhat muted.

The discussions during these meetings have become increasingly critical, especially as members express differing views on future interest rate decisions.

Later today, at 18:00 PM GMT, the minutes from the FOMC's September 17-18 meeting will be released. These minutes are expected to shed light on the rationale behind the decision to cut interest rates by 0.5 percentage points last month. Economists and investors will be closely monitoring the minutes for any concerns expressed by officials regarding the mixed signals from the U.S. economy and labor market.

The September jobs report exceeded expectations, showcasing a drop in the unemployment rate and a surge in job growth, with hiring figures for the preceding two months also revised upwards. However, the descriptions of the labor market and economy in the minutes may appear somewhat outdated in light of these developments.

Chairman Powell has adopted a more cautious tone recently, indicating that the risks to the economic outlook are "two-sided" and that the Federal Reserve is not in a hurry to lower interest rates. Similar sentiments have been echoed by other officials, particularly following the release of notably positive economic data.

Currently, the S&P 500 is navigating a consolidation phase between the 5,773 and 5,670 levels. The upper boundary aligns with the all-time high, while the lower boundary corresponds to the July 2024 high and the bottom of the consolidation range. Bullish indicators, such as the RSI, have shown higher lows since August 2024, suggesting potential upward momentum. If buying activity increases, the Stochastic RSI may continue to rise from oversold levels, confirming the bullish trend. Importantly, the index remains well above the 50 EMA, indicating that the mid-term trend is secure, with support down to the 5,600 level.

The forthcoming FOMC meeting minutes have the potential to significantly influence market dynamics. Should the central bank signal through the minutes that it is not adopting a dovish stance and is ready to adjust its course, market participants may temper their expectations for further interest rate cuts. This could bolster the U.S. dollar while negatively impacting bond and stock markets.