PCE Data

This Friday's release of the Fed's preferred inflation gauge will reveal if price pressure has remained subdued despite the central bank's gradual retreat from its tight monetary policy that has been implemented to cool the economy.

The personal consumption expenditures (PCE) price index for August is predicted by economists to have increased 2.5% from the previous year.

According to the Fed's most recent economic forecasts, the price index will decline annually to 2.1% by the end of 2025 and 2.3% by the end of the current year.

The final reading of the second-quarter GDP, figures on consumer confidence, durable goods orders, new and pending home sales, and weekly data on initial jobless claims are all on the economic schedule for the next week.

Seasonality

The first U.S. monetary easing cycle since 2020 began last week when the Fed announced a sizable 50 basis point rate decrease, which caused the benchmark S&P 500 to reach its first closing all-time high in two months.

September is usually the worst month for equities, but so far this year the index is up 0.8% and has gained 19% for the year.

However, if economic data contradicts assumptions that the economy is navigating a "soft landing," in which inflation moderates without affecting growth, the market rise may be put to the test.

In such a situation, stocks do substantially better when the Fed starts cutting rates than they do when it reduces during recessions.

Additionally, given the tight race between Republican Donald Trump and Democrat Kamala Harris, the market may get more sensitive. Current surveys indicate a nearly equal race.

PMI

The most recent picture of the status of the world economy will be provided by flash PMI data, which will be issued starting on Monday.

For the last six months, the composite Purchasing Managers Index (PMI) for the euro area and the UK has been in an expansionary zone, which has supported the strong pound.

For the time being, markets seem content that the Fed's half-point rate reduction will help prevent a US recession and, consequently, a worldwide one. There are still some issues, though.

August saw a further decline in corporate activity in Germany, and mood is very low. China, the second-biggest economy in the world, is in danger of failing to meet its yearly growth objective of about 5% because of its ongoing economic difficulties.

Fed speakers

We'll be keenly monitoring any comments made by Fed officials in the upcoming days since they'll probably provide further insight into the unexpected rate 50bps cut from last week.

On Monday, Chicago Fed President Austan Goolsbee will talk first, followed by Atlanta Fed President Raphael Bostic.

Fed Governor Michelle Bowman will talk twice this week, first on Tuesday and then again on Thursday. She recently became the first governor to disagree with a Fed decision since 2005, so her remarks are expected to explain why she made the choice and warn against reducing rates too soon.

(Sources: investing.com, reuters.com)