With permission of the third quarter results of large American banks -with JP Morgan, Morgan Stanley and Citigroup opening the season this Tuesday—, all the markets’ attention will focus today on Jerome Powell. The president of the Federal Reserve (Fed) will give a speech on economic outlook and monetary policy at the Annual Meeting of the National Association for Business Economics (NABE), in Philadelphia, Pennsylvania. The appointment comes at a time of scarcity of macroeconomic references due to the partial shutdown of the US governmentwhich has paralyzed the publication of several key indicators. Among them, the inflation data (CPI) for September, which was due to be known this Wednesday and which, according to several sources, will be delayed until Friday, October 24.
«It makes sense,» explain Bankinter analysts. «Publishing it this week, with the recent lack of media, could call into question the reliability of the measurement and reduce the credibility of the indicator.»
EXPECTATIONS OF A PRUDENT SPEECH
In this context, experts expect Powell to adopt a «rather ‘dovish'» tone this Tuesday—that is, more inclined to maintain a flexible monetary policy—in the absence of data to guide the Fed’s next decisions. The central bank will meet again on October 29in a scenario in which the labor market has become its main focus of concern. The uncertainty derived from the administrative closure adds additional pressure: some agencies have already begun to temporarily reduce staffwhich increases the risk of a cooling of employment, according to analysts from the Spanish bank. «The lack of information does not make the work easier for a Fed so dependent on data,» they point out from Bankinter, and they expect Powell to be cautious but open to new rate cuts if conditions deteriorate. «Every member of the central bank who has spoken in recent days has conveyed a similar message,» they add.
THE MINUTES, IN FAVOR OF MORE DISCOUNTS
The publication of the minutes of the September meeting reinforces that expectation. In this last meeting, the Fed resumed rate cuts with a drop of 25 basis pointsand the document, published last week, shows that a majority of members considered «it is probably appropriate to further ease monetary policy during the remainder of the year». «Some participants noted that, according to various indicators, financial conditions suggested that monetary policy may not be particularly restrictivewhich, in his opinion, justified a cautious attitude when considering future policy changes,» he adds. In this way, the Fed minutes reinforce the expectations of the market, which discounts a new drop of 25 basis points in the meeting that the organization will hold at the end of this month with a 92% probabilityaccording to CME’s ‘FedWatch’ tool. Even so, «almost all members» of the Fed believe that rates are at an appropriate level and that, after the September cut, the Committee is well positioned to respond flexibly to any economic surprise.