Today’s economic data focused on Canada where retail sales rose by a stronger-than-expected 0.9% but prices were lower than forecast.
In the US, two days after the Federal Open Market Committee cut interest rates by 50 basis points, Waller, a more hawkish member, spoke on CNBC. His comments were seen as more tolerant of the Fed recalibrating its policies as inflation falls and unemployment rises.
Federal Reserve Governor Chris Waller said the economy remains strong and inflation is coming down. He expressed openness to cutting interest rates in advance based on inflation data, especially during the recent blackout. Waller noted that Core personal consumption price inflation has averaged 1.8% over the past four months, but could be closer to 1% if housing services are excluded.He laid out several possible scenarios for rate cuts, which could be gradual, faster or even paused, depending on incoming data. While inflation is weaker than he initially expected, Waller indicated he could be more aggressive in cutting rates if the data supported that. He also cautioned that inflation could reverse, though he believes it is currently on track.
Quote from the Federal Reserve Governor:
“The committee sees a lot of room to move down over the next six to 12 months. That’s what we should really be focusing on.”
Philadelphia Fed President Harker also spoke, commenting that the Fed has done a good job of steering the economy. He compared monetary policy to driving a bus, where it is important to balance speed. Harker emphasized that maximum employment involves the quality of jobs, not just the quantity, and highlighted the importance of both “hard” and “soft” data in the Fed’s decision-making process. He also noted the Fed’s role in banking supervision and financial stability and its exploration of emerging technologies such as artificial intelligence and quantum computing in finance. Later, Harker warned that there was a risk that disinflation could stall and that the labor market could soften. His comments were dull.
Finally, Fed Governor Michelle Bowman weighed in, after her first dissent at the Fed since 2005, when she favored a 25 basis point rate cut rather than a 50 basis point cut. Bowman expressed support for recalibrating the federal funds rate, but preferred a smaller initial step. She sees a risk that the broader policy action by the FOMC could be interpreted as a premature declaration of victory over inflation, noting that the inflation target has not yet been met. Bowman advocates a measured pace toward a neutral policy stance to continue progress in returning inflation to the 2% target without unnecessarily stimulating demand. She emphasized that the economy remains strong, with the labor market nearing full employment, and expressed respect for colleagues who supported further rate cuts, and remained committed to working with them to achieve the goals of the Fed’s dual mandate.
I’m sure we’ll get a series of comments from various Fed officials next week. The Fed doesn’t meet again until November 7-8, right after the US election.
Looking at today’s forex market, the British pound ends the day as the strongest of the major currencies, while the yen is the weakest. The US dollar ends the week with gains against the Japanese yen, the Swiss franc and the Australian dollar. The US dollar was almost flat against the euro, the Canadian dollar and the New Zealand dollar and was mostly lower against the British pound.
The Bank of England left interest rates unchanged on Thursday and today reported a rise in retail sales.
The Bank of Japan also left interest rates unchanged when it announced its decision today, but it was a more dovish view. The yen fell -0.93% against the US dollar and the New Zealand dollar, and -1.17% against the pound. The yen fell -0.58% to -0.89% against other currencies.
Below is a list of the strongest and weakest major currencies today.
US stocks closed mixed:
- The Dow Jones Industrial Average rose 38.17 points, or 0.09%, to 42,063.36.
- The S&P 500 fell -11.09 points, or -0.19%, to 5,702.55.
- The Nasdaq Composite Index fell -65.66 points, or -0.36%, to 17,948.32.
The Russell 2000 small-cap index fell -24.81 points, or -1.10%, to 2,227.88.
This week:
- The Dow Industrial Average rose 1.62%.
- The S&P 500 rose 1.36%.
- The Nasdaq rose 1.49%.
- The Russell 2000 Index rose 2.08% despite falling 1% today.
In Europe, lockdowns were low:
- German DAX -1.4%
- French CAC index -1.5%
- UK FTSE 100 Index -1.2%
- Spanish IBEX -0.1%
- Italian FTSE MIB -0.8%