FOMC to stand pat, but keep door open to possibility of further hikes

Summary

United States: The best of summer gone, and the new fall uncertain

• The Consumer Price Index picked up 0.6% in August—the largest monthly gain since June 2022. The outturn was broadly expected amid the surge in gasoline prices last month. Short-term and long-term consumer inflation expectations declined, suggesting consumers are more convinced that inflation is cooling.

• Next week: Housing Starts (Tue), Existing Home Sales (Thu), Leading Economic Index (Thu)

International: The ECB's dovish hike

• Leading into the European Central Bank's (ECB) September assessment of monetary policy, we felt policymakers would opt to end their respective tightening cycle. Needless to say, ECB policymakers delivered another 25 bps of tightening; however, the forward guidance associated with the decision became the larger focus of the meeting.

• Next week: Brazilian Central Bank (Wed), Bank of England (Thu), Bank of Japan (Fri)

Interest rate watch: FOMC to stand pat, but keep door open to possibility of further hikes

• The FOMC is widely expected to keep the fed funds target rate unchanged at 5.25-5.50% at its upcoming meeting as inflation has more clearly started to slow. However, with price growth still running well-above target, we expect the hold to be delivered with the message that further policy tightening is possible if incoming data warrants it.

Credit market insights: How tight are financial conditions?

• Some recent data point to a tightening and costlier credit market, but how tight are financial conditions broadly? Timely evidence from the Federal Reserve Bank of Chicago suggests national financial conditions are still looser than average and have been easing in recent weeks.

Topic of the week: Median household income falls in 2022

• The U.S. Census Bureau released its annual Income & Poverty Report this week, which showed that U.S. incomes fell for the third straight year in 2022. Real median household income before taxes fell to $74,580 in 2022, down 2.3% from the 2021 estimate of $76,330.

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