MNI U.S. Weekly Macro Wrap: Holding Pattern Before A Crucial Week

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• This week’s in-line jobless claims report resulted in a small hawkish shift in rate expectations, highlighting the market’s sensitivity to labor market data after Fed Chair Powell’s Jackson Hole speech last week emphasized the FOMC’s resolve to head off employment weakness.
• The theme of economic resilience was bolstered by surprise consumer spending-driven upward revisions to GDP growth in Q2, whilst consumption continued at a solid pace in July but only from running down what is now a particularly low savings rate.
• The week’s most ominous data point however was another fall in the Conference Board’s labor differential, the net of consumers finding jobs as being plentiful versus hard to get. It gives good directional guide to the unemployment rate, and on its own makes July’s surprise increase in joblessness look less of an anomaly.
• PCE inflation data meanwhile will give the Fed more confidence that inflation is increasingly under control.
• Market expectations for near-term Fed rates have generally been in a holding pattern ahead of next week’s crucial nonfarm payrolls report, but have nevertheless trimmed cut expectations to 33bp for September (implying a sure 25bp cut with potential for 50bp) and a cumulative 100bp over the 3 meetings left in 2024.

Next Week: ISM services on Thursday offers another major risk event, whilst payrolls will be followed by Fed Governor Waller with a speech on the economic outlook at 1100ET for what is likely the Fed’s last steer on rates before the media blackout preceding the Sep 17-18 FOMC meeting.