Things have been getting more and more precarious on the financial markets as we move further into October. Traders and investors can't seem to make head or tail of how the Federal Reserve is reading the economic tea leaves—and these aren't the types who enjoy that powerless feeling of uncertainty.
The mixture of good and bad, of clear and ambiguous, in recent economic data is making it even harder to predict where the central bank will go next after thus far failing to take action on interest rates in 2015.
The chart below shows how the futures markets have progressively stopped pricing in a rate hike from the Fed over the third quarter.
Economic Data Released Thursday
The most recent figures released continue to send mixed messages about the state of the economy. The big news was that jobless claims again notched a 42-year low, as fresh claims came in at 255,000 this week. This was below analysts' expectations of 270,000. Moreover, the four-week rolling average for weekly claims was down to 265,000, also the lowest since 1973.
Though employment gauges have remained strong, inflation has been the big sticking point for the Fed. Throughout the year, measures of inflation have yet to pick up anywhere near the Fed's ideal target of 2%. The consumer price index (CPI) for September fell by 0.2% when seasonally adjusted, as deflation is weighing upon both the U.K. and U.S. economies. Consumer prices have been virtually flat over the last 12 months. When you adjust CPI to leave out food and energy prices (which have been falling the fastest), price growth is still subdued, below 2%.
As a result of the absence of any notable inflation, those receiving Social Security are not expected to receive a cost-of-living increase to their benefits this year, as they have the last three years.
On the productivity side of things, the key Empire State Manufacturing index saw its third straight month of negative readings, registering at -11.4, indicating a contraction in factory output from the region. Analysts expected less of a contraction, predicting a reading around -8.3, yet some are still spinning the data as merely "climbing less than expected." The Philly Fed Business Outlook survey was also released this morning.
Thanks to the jobs data, the dollar was 0.66% higher this morning, at 94.55 on the DXY index. The Greenback gained against the euro and pound for the first time this week, although the yen advanced below 119-per-dollar, its strongest level since late August. Global stock markets were unanimously in the green this morning.
Fed Speaking Arrangements
Several members of the FOMC will be giving speeches today: James Bullard (St. Louis Fed President), William Dudley (New York Fed President), and Loretta Mester (Cleveland Fed President) will each be speaking in different locations today. The markets will certainly be listening for any signs of panic.
More interesting reads:
Columnist Rex Nutting gives a convincing explanation for why the Fed is missing the mark about combating deflation or even disinflation (chronically low inflation).
Howard Gold, another columnist, takes a look at how bond investors and traders should look at the Fed's confusion.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.