Source: Jin10 Data

In September, the unexpected addition of non-farm payrolls in the usa exceeded expectations by a large margin, causing investors to feel uncertain about the direction of the Federal Reserve's policy. Previously, the Federal Reserve stated that after years of fighting against inflation, the focus has shifted to the labor market.

However, following the strong wage report, market commentators express ongoing concerns that inflation may not have completely disappeared. The CPI data scheduled to be released this week will be crucial.

Last month, the usa added an astonishing 0.254 million jobs, nearly doubling the market's expectations, with the unemployment rate dropping to 4.1%.

Economist Mohamed El-Erian stated that this allows the Federal Reserve to once again shift some attention back to combating inflation. In recent months, as the Federal Reserve shifted its focus to what seemed to be a deteriorating labor market situation, inflation concerns took a back seat. However, with the September employment report surpassing expectations, this view may be premature.

In an interview, El-Erian pointed out, 'For the Federal Reserve, this means it has to resist market pressures more firmly, cannot fall into the trap of a single mission, the claim that 'inflation is dead' has been heard enough times, inflation is not dead. The argument that the Federal Reserve should only focus on full employment has also been heard enough.'

UBS Group suggests that the upcoming CPI report will be the next focus of the market's attention. UBS Group's Senior Economist Brian Rose stated in a report last Friday, 'The September CPI data will be the next key data point. If the price increase exceeds expectations and is coupled with strong labor data, the likelihood of the Federal Reserve staying put in November will increase.'

Bank of America analysts wrote last Friday that the Fed may have been somewhat panicked last month, but now, there may not be a need for another substantial rate cut. The bank adjusted its forecast for the Fed's November meeting from a previous 50 basis point cut to a 25 basis point cut.

Few analysts suggest that the Fed will keep rates unchanged next month, but investors have clearly adjusted their expectations.

Currently, almost no traders expect the Fed to cut rates by 50 basis points in November, with market forecasts of about a 33% chance of another substantial rate cut by the Fed before the release of the employment report last Friday. Now, the CME Group's FedWatch Tool shows a 99% chance of a 25 basis point rate cut by the Fed in November, with only 1% of investors expecting rates to remain unchanged.

Although banks like Barclays hint that the strong momentum in the labor market may reignite inflation concerns in the future, a significant increase is not a universal consensus. For example, Bank of America expects a 0.1% and 0.3% month-on-month increase in overall CPI and core CPI in September, changes that are not enough to impact the Fed's decisions.

Nevertheless, given that inflation remains slightly above the Fed's 2% target, some analysts warn investors not to overlook price pressures. Seema Shah, Global Chief Strategist at Vanguard Asset Management, stated that unexpected changes in the labor market will only make this more important. She said:

"The market needs to closely monitor inflation as there are many policy risks."

Editor / jayden