People in the U.S. are still unhappy about topics like tariffs, inflation, and economic policies. Even though inflation is started to drop down, this could make it harder to argue for large rate reduction.
The University of Michigan’s consumer mood poll for September revealed another dip. This demonstrates that people are apprehensive about the economy and inflation.
Inflation expectations for the next year and the long term are still higher than the Fed’s target of approximately 2%. This makes it more probable that interest rates will rise or that policy easing will be more careful.
The markets are still not sure. People are starting to think that the Fed will lower rates, but they are also increasing more anxious that strong inflation will force the Fed stop or slow down decreases.
This means:
If people aren’t feeling well, they might not buy as much, which would harm the retail and consumer discretionary industries’ sales.
Long-term bonds lose value because people foresee higher inflation, which could raise yields, even though people want lower rates.
It might be challenging for the Fed to make a decision since policymakers might have to choose between keeping inflation low and promoting growth.
What to Watch Out For:
More releases: the CPI and PPI, jobs statistics, and personal spending.
In the future, the Fed will comment about whether they are more worried about inflation or the economy slowing down.
Check out consumer behaviour data, such as sales of durable goods and retail sales, to see if demand is going down.