TD Securities economists Oscar Munoz and Eli Nir report that an October Federal Reserve rate hike is increasingly likely, citing continued hawkish commentary from Fed officials who 'expect more hikes' due to diminished confidence in inflation's progress toward target levels [1]. The economists note that recent data shows strong PCE inflation, modest gains in ISM Manufacturing, and a softer September Non-Farm Payrolls (NFP) report accompanied by higher unemployment [1].
According to TD Securities, PCE inflation is projected to reflect the robust August CPI and PPI reports, with headline PCE expected at 0.38% month-over-month (3.8% year-over-year) and core PCE at 0.32% month-over-month (3.4% year-over-year) [1]. Market participants are closely watching the Bureau of Economic Analysis's annual revisions, with TD Securities cautioning that year-over-year inflation may not be revised lower as much as markets anticipate [1]. Consumer spending is forecast to accelerate to 0.9% (0.5% real), supported by strong retail sales [1].
The economists anticipate two additional Fed rate hikes, in October and January, as inflation remains above target and risks are mounting [1]. They observe that the labor market has stabilized with some signs of strengthening, and overall economic activity data has been robust, suggesting the economy can withstand further monetary tightening [1]. The trajectory of future Fed policy will depend on the evolution of inflation data and the resilience of the labor market [1].
Key Fed officials, including Waller, Jefferson, Cook, and Kashkari, are highlighted as important speakers to monitor for further policy signals in the coming week [1].
CONCLUSION
TD Securities expects the Federal Reserve to implement two more rate hikes, driven by persistent inflation and robust economic data. Market participants should closely monitor upcoming inflation releases and Fedspeak for further guidance on the policy path.