What do the markets care about this week? We have another CPI print on Wednesday, which is highly anticipated. We are in a period of nasty stagflation and the Fed is caught in a difficult position. They want to raise rates further, but the issue is that our cause of inflation seems to be on the supply chain side. Interest rates will do little to combat this. The NFP numbers Friday were pretty strong, so their case is strengthened to raise by at least 50bps in September, at the next FOMC. It will be almost a certainty if CPI comes in hot.
Note that GDP came in contractionary for two quarters in a row, which is the definition most use for a recession. This stands somewhat at odds with the strong NFP numbers, which could be a seasonal fluke. If the data continues to indicate that we are in a recession, the Fed will eventually be forced to lower rates again. The markets seem to be weighing this reality before rallying with conviction.
Why do you not also include the upcoming election? Do you feel that won't have much of a role?
quantguy
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@Bill_Howell, Elections are always a source of risk for the markets, and big moves will await those results because of the differing policies each party may have and what companies will benefit. But this really won't effect the Fed or the longer term economic cycle too much. Except perhaps with the exception of the current US administration which has plummeted us into a recession in less than two years. That must be some kind of record...