Investors in global markets are now focused on U.S. employment data. Clues regarding the future policies of the Federal Reserve will be sought from the signals derived from the nonfarm payroll data. Meanwhile, doubts persist about whether the battle against inflation will result in a recession.

Following the release of macroeconomic data, global markets took a positive turn last week with the view that the Federal Reserve (Fed) could potentially end its fight against inflation with a “soft landing” that would not harm the economy. The spotlight is now on the U.S. employment data to be announced next week. While concerns remain about whether the battle against inflation could lead to a recession, recently released macroeconomic data have helped contain these worries.

Global markets also saw a positive trend last week following the expected growth of the U.S. economy by 3% in the second quarter of the year. This was coupled with the anticipation that the Fed could peacefully end its fight against inflation without detrimental effects on the economy. Moreover, in the second quarter, personal consumption expenditures were forecast to increase by 2.5% in line with expectations, while the core personal consumption expenditure price index, excluding food and energy expenditures, was maintained at a 2.8% increase.

The core personal consumption expenditure price index, which excludes food and energy items and is considered by the Fed as an inflation gauge, rose by 0.1% on a monthly basis and 2.7% on an annual basis in August. Market expectations were met with the annual change while it was anticipated that the monthly increase would be 0.2%.

FED OFFICIAL STATEMENTS
Amid the continued focus of markets on statements from Federal Reserve officials, Chairman Jerome Powell did not provide an evaluation of monetary policy and the economic outlook in his speech last week. Fed Board Member Lisa Cook expressed her full support for the Fed’s 50 basis point interest rate cut, noting, “I will carefully examine the data on policy, the evolving outlook, and the balance of risks.” Board Member Adriana Kugler also strongly supported the Fed’s rate decision, stating, “If progress in inflation continues as expected, I will support further cuts.”

Atlanta Fed President Raphael Bostic mentioned that starting the rate cut cycle with a bold move would help bring interest rates closer to neutral levels by balancing the risks between inflation and labor market cooling. Highlighting that progress in inflation and labor market cooling has been much faster than expected, Bostic said he foresees monetary policy normalizing earlier than thought.

Chicago Fed President Austan Goolsbee underscored the need for a significant reduction in interest rates to protect the labor market and support the U.S. economy. In his view, as confidence is gained in the trajectory toward a 2% inflation rate, attention should be directed to risks related to employment. Goolsbee noted that this likely means much more interest rate cuts next year.

EXPECTATIONS FOR AGGRESSIVE RATE CUTS
Despite alleviating recession concerns following the release of macroeconomic data, expectations for a 50 basis point cut by the Fed in November decreased to 53% but remained strong. It is almost certain that the Fed will make a 75 basis point cut by the end of the year. Analysts remarked that next week’s employment report data will be the focus for investors, emphasizing that signals from the nonfarm payroll data could provide hints about the Fed’s future policies.