Key US economic data releases this week will significantly influence market expectations as the Federal Reserve approaches its January policy meeting, according to ANZ economists. The focus will be primarily on the November non-farm payrolls and the Consumer Price Index (CPI). These data points will provide crucial insights into the state of the US economy and potential future monetary policy adjustments.
The October Household Survey, including the unemployment rate, was affected by the federal government shutdown, which led to its cancellation. The October CPI data will also be partial, making month-on-month comparisons difficult. ANZ noted that Fed Chair Jerome Powell has cautioned that these readings are likely to be distorted, suggesting that policymakers might downplay them when evaluating future interest rate moves. Consequently, the reliability and interpretation of the forthcoming economic data are under scrutiny.
In addition to the data releases, markets will be closely monitoring speeches from various Fed officials for further guidance on the anticipated pace of future rate cuts. Last week, the Federal Open Market Committee (FOMC) lowered the federal funds rate by 0.25 percentage points, bringing it to a range of 3.50-3.75 per cent. This reduction marks a 1.75 percentage point decrease since September 2024, although seven members dissented against the most recent cut.
Looking ahead, ANZ anticipates a further 0.5 percentage points of easing during this cycle. However, with interest rates nearing neutral levels, the bar for additional cuts is considered to be higher. The Fed’s decisions will likely be data-dependent and carefully balanced against potential risks to the economic outlook.
