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Investing.com – When it comes to the job market, people seem to want the data to be bad news, i.e. to get weak. But with inflation, the Fed is hoping for good news, i.e. lower inflation.
In the labor market, indicators such as the recent jobs report – which showed that fewer Americans are being hired – can be interpreted as bad news. It could mean that it will be more difficult for unemployed Americans to find work.
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In terms of inflation, the good news for average Americans is lower prices. So if economists’ predictions are correct – that data due out tomorrow will show annual inflation rising from 3% in June to 3.3% in July as experts predict, it will be unwelcome news for the Americans and the Fed.
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Does today’s inflation data affect the upcoming Federal Reserve decision?
Inflation is expected to remain above the Fed’s 2% target. Although the jobs data released a few days ago showed that the labor market is getting weaker with the decrease in jobs added by the US economy, and therefore if inflation remains far from the Fed’s target, and does not follow the path of employment data, it is likely that the Federal Reserve will raise rates in next meeting.
The central bank paused its aggressive rate-raising cycle in June, but has indicated that it is likely to raise rates by 0.25% twice more this year (or 0.50% once), having done so only once as in last meeting.
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Thomas Barkin, president of the Federal Reserve Bank of Richmond, said on Tuesday that there is still time for Fed officials to study the data before deciding whether further interest rate increases are needed.
Philadelphia Fed President Patrick Harker said that the US central bank may be at a point where it can leave interest rates as they are, unless there is any sudden change in the upcoming economic data.
data scenarios
The first scenario is that inflation data will be positive and better than market expectations, as monthly inflation will rise by more than 0.2%. The annual US inflation also rose by more than 3.3%, as experts expect inflation to rise again on an annual basis compared to the previous reading, and in this case, inflation will continue to move away from the Fed’s target of 2%, which motivates it to raise interest rates at the next meeting. That is, even if the data came according to expectations, that is, it recorded an increase of 3.3%, as experts expect, this will be a return to the rise in inflation rates, especially since the previous reading was at only 3%.
This positive scenario will provide the necessary support for the index, and it may head towards strong gains, which will negatively affect gold, because this scenario will make the US Federal Reserve more stringent during the coming period.
While the second scenario is represented by negative US inflation data and that inflation grows less than expected, and in this way, the dollar may decline, and then gold will jump, because this scenario will make the Fed more cautious with regard to tightening monetary policy during the coming period, because slowing inflation will make the Fed Less anxious to raise interest.
2023-08-09 11:50:00
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