The upcoming release of the U.S. September Consumer Price Index (CPI) data next Thursday could unveil key insights, particularly regarding the core CPI, which carries potential upside risks. The preliminary S&P Global Purchasing Managers' Index has revealed a concerning trend, showing that business purchase prices have increased at the most rapid pace in six months.
While the ISM manufacturing survey pointed to a decline, the non-manufacturing report confirmed the continuation of rising price pressures. In light of this, if the upcoming data indicates that inflation remains persistent, it could sway investor sentiment towards the belief that the Federal Reserve may move forward with its plans to implement a 25 basis point reduction in interest rates in both November and December. Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, pointed out that the September employment report could be precisely what the Federal Reserve was hoping for, especially after a series of relatively weak employment data over the summer months.
He stated, 'It breaks the recent trend and provides an optimistic reason for the labor market to remain resilient.' Although this report is unlikely to shift the broader economic outlook significantly, it has the potential to alleviate some concerns that investors or the Federal Reserve might harbor regarding the job market. Earlier this week, Federal Reserve Chairman Jerome Powell emphasized his desire not to see further deterioration in the labor market.
It's worth noting that a key factor influencing the Federal Reserve's decision to reduce interest rates by 50 basis points last month was the recent slowdown in hiring alongside the increase in unemployment figures seen earlier this year. As the market closely monitors these developments, both investors and policymakers alike will be scrutinizing the implications of the forthcoming CPI data on inflation and monetary policy strategies..