Futures contracts for the Dow Jones index dropped by 4 points and are trading near a steady level since the beginning of Monday’s session at $34,637.
Futures contracts for the S&P 500 index also fell this morning as investors await the Federal Reserve’s monetary policy decision. Futures contracts related to the Nasdaq 100 index declined by approximately 0.2%.
This comes as there are semi-certain expectations that the Federal Reserve will keep interest rates unchanged at its meeting this week. During Powell’s subsequent press conference, markets will also seek a clearer idea of the central bank’s inflation expectations.
I believe the way the Federal Reserve implements the temporary pause in interest rate hikes is of utmost importance for November and December expectations, as the Fed’s hawkish or dovish tone is crucial for financial markets.
This is because recent inflation data largely aligned with economists’ expectations. While the Producer Price Index rose more than expected, the core Producer Price Index, excluding food and energy, matched estimates. Additionally, the core Consumer Price Index ticked slightly higher than expected in August at 0.3% every month, compared to the estimated 0.2%.
However, I think that if data continues to stay elevated with a strong job market, it may lead to further interest rate hikes and monetary tightening or keeping interest rates higher for longer than expected. The Fed will rely on more economic data to determine its future policy. This increases the likelihood that the United States may experience a soft and prolonged recession when different sectors face downturns at different times.
The Federal Reserve, which will hold its policy meeting this week, has been trying to lower inflation without pushing the economy into a major and damaging recession.
A soft recession must be synchronized with labor market flexibility, lower inflation, and reduced core inflation expectations to navigate the current crisis without significant economic losses. However, I believe that the movement of the Dow Jones index remains within a defined range despite the sharp declines in other indices. The reason may be the Federal Reserve’s impending interest rate decision at this stage.
Uncertainty will dominate the markets strongly because the overall economic outlook still hovers between expectations of a soft or hard recession, given the weakness in other major economies such as the Eurozone and China, which leans toward the worst-case scenario in my view.
In addition to the Federal Reserve’s decision on Wednesday, several important economic figures will be released this week. The most notable of these is Federal Reserve Chair Powell’s press conference, during which he is likely to reiterate the Fed’s data-dependent stance.
Another report on U.S. jobless claims will be released on Thursday, and the week will conclude with the release of the U.S. Purchasing Managers’ Index (PMI) data, which will be very important for pricing asset movement in financial markets, especially stock indices.