Economic Waves: Fed's Path

Hey, it’s mid week Wednesday!

US equity indices are on a strong upward trajectory, with tech and large-cap stocks leading the charge. Volatility is decreasing, and the crypto market is showing promising gains. A surprising boost in retail sales last week stands in stark contrast to China's lackluster data, which has triggered sell-offs across various sectors—except for gold, which has reached new highs. This week, the focus shifts to the FOMC minutes and an upcoming speech, as markets eagerly await a potential US rate cut.

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The Wave

This week, all eyes are on the release of the August Federal Open Market Committee (FOMC) meeting minutes and the forthcoming GDP growth data, both poised to shed light on the economic outlook. Analysts are predicting a modest upward revision in Q2 GDP growth, fueled by robust consumer spending. The FOMC minutes will be scrutinized for clues about the Federal Reserve's future interest rate strategies, particularly amid the ongoing debate over whether the Fed will sustain its current pause or implement further tightening later this year.

The market is split on the Federal Reserve's upcoming moves. Some economists are confident that the Fed will maintain a cautious approach and keep rates steady in the September meeting. Others, however, foresee the possibility of another rate hike before the year concludes. The CME Group's FedWatch tool indicates a 60% probability that the Fed will hold rates steady in September, with a 40% chance of a 25-basis-point increase. Future rate hikes will be significantly influenced by upcoming inflation and employment data.

Adding to the week’s critical events is the release of the jobless claims report on Friday, which has been notably volatile in recent weeks and could significantly influence market sentiment. Investors are also closely watching the Jackson Hole symposium, where Jerome Powell’s speech has traditionally been a "sell-the-news" event, potentially leading to heightened investor caution. Meanwhile, the sharp market rebound following Japan’s interest rate decision, along with the ongoing rally in Gold and Silver—particularly the strong performance of Silver—serve as key indicators of investor sentiment amid these uncertain times.