Overview of Recent Federal Reserve Meeting and Jerome Powell's Comments

The upcoming Federal Reserve meeting and Chair Jerome Powell's comments are expected to shed light on the future direction of interest rates in the United States. However, it's important to note that Jay Powell, as the Chair, will stick to his usual pattern: he will discuss the current data, explain how it influenced the decision, and refrain from speculating on future actions. Market analysts are, however, likely to misinterpret his cautious assessments.

Accelerating Disinflation: An Unmistakable Trend

It is important to recognize that the Federal Reserve's inability to keep up with the pace at which inflation is falling is a notable issue. In September 2023, the Fed’s median estimate for Core PCE (Personal Consumption Expenditures) for the end of the year was 3.7. This estimate was revised down to 3.2 based on the latest data, which shows that the actual Core PCE for the full year was 2.9. This represents a significant downward revision and signals a rapid rate of disinflation.

Recent data points confirm this trend:

PCE Price Inflation Year-over-Year (YoY): 2.6 vs. 2.6 consensus and 2.6 prior. PCE Price Inflation Month-over-Month (MoM): 0.2 vs. 0.2 consensus and -0.1 prior. Core PCE Price Inflation YoY: 2.9 vs. 3 consensus and 3.2 prior (the lowest since February 2021). Core PCE Price Inflation MoM: 0.2 vs. 0.2 consensus and 0.1 prior. US Personal Income MoM: 0.3 vs. 0.3 consensus and 0.4 prior. US Personal Spending MoM: 0.7 vs. 0.4 consensus and 0.4 prior. Six-month annualized PCE: 2.0 and six-month annualized core PCE: 1.9. Strong consumer income and a robust employment market, with first estimates of Q4 GDP at 3.3 (vs. 2).

Given these strong indicators, the U.S. economy is on track to achieve a soft landing. This means inflation will return to target levels without triggering a recession. However, the persistent challenge lies with the Federal Reserve itself and its understanding of interest rate trends.

Future Path of Interest Rates

The Federal Reserve is expected to maintain its cautious optimism regarding the future path of interest rates. Chair Powell is slated to deliver a critical speech on this topic, likely emphasizing recent improvements in inflation and indicating a readiness to adjust rates if needed.

Investors anticipate that Powell will not deviate from the current course, possibly including further rate hikes. Despite the fact that inflation has decreased from earlier highs, it remains above the Fed's target, suggesting the possibility of prolonged higher interest rates.

Analysts predict that the November meeting will keep rates steady, but there is growing anticipation for a potential rate hike in December. The upcoming Federal Reserve meeting is crucial in understanding how inflation data will influence future monetary policy decisions.

Conclusion

As the Federal Reserve continues its mission to navigate the complex landscape of inflation and economic growth, stakeholders should remain vigilant. Powell's speech is likely to provide valuable insights into the direction of monetary policy, and the November and December meetings will be key indicators of future rate movements.