Why the French government doesn’t matter as much as the Fed

Inflation Stagnation: What the Fed is Saying

Retail traders always seem to be looking backwards, while the market is always looking forward.  By the time news reaches MIND communities, it’s already factored in, prompting traders to analyse potential outcomes and anticipate what’s to come.

Market participants are now starting to focus on inflation trends which is heading toward the Federal Reserve's 2% target, recent remarks from officials highlight both progress and lingering challenges. Here's what you need to know based on the latest data and insights.

Current Inflation Data

  • PCE Inflation: Down to 2.6% year-over-year in December 2024, with core PCE inflation (excluding food and energy) at 2.9%, compared to peaks of 7.1% and 5.6% in mid-2022.
  • Goods vs. Services: Goods inflation has actually cooled off quite a bit, while services inflation-core services excluding housing-remains well above target at 3.3% .

Fed Officials' Perspectives

    1.    Governor Christopher Waller:
           "Core PCE inflation has run close to 2% over the last six months, but sustainability is key." Waller remains guarded, emphasising continued vigilance amid a tight labor market .

    2.    President Tom Barkin (Richmond Fed):
            "Inflation could level off at a cruising altitude higher than our 2% target. Data coming in this year will matter a lot."
            Barkin emphasized the balance between economic resilience and inflation control.

    3.    Governor Adriana Kugler:
            "Core services less housing, which comprise half of the PCE index, are key to further disinflation.  The deceleration in wage growth and price-setting behaviour of firms is the encouraging trend.”
            Kugler pointed to anchoring inflation expectations as crucial for maintaining progress

Risks and Outlook

  • Soft Landing Possible but Uncertain: Soft landing, going back to stable inflation without a recession, is possible but can't be ensured. According to Barkin, there can be "unexpected turbulence" while Waller recognises  that calibrated changes in policy remain imperative
  • Labor Market Resilience: Though demand cools, job creation remains strong, with the unemployment rate holding at 4.2%. This strength could complicate efforts to further tame inflation
Conclusion
The latest data has been promising, but Fed officials are still very resistant to declaring victory. A lot has already being priced in and the latest data looks promising, but Federal Reserve officials remain hesitant to declare victory. 

A lot has already been factored into the Dollar; in fact, I believe it will take much more than merely Fed officials staying on the sidelines for the Dollar index to rise, especially as we approach 2025 with the looming uncertainty surrounding Trump tariffs and policy.

Nov 21st, Posted on my Discord community

Disclaimer: This blog post is for general information purposes only and does not constitute financial advice.

Comments

Post a Comment

Popular posts from this blog

S&P 500 Election-to-Inauguration Performance: A Historical Perspective

Image
As a trader and analyst, I always start by diving deep into the data, analyzing the interplay of economic, fundamental, and technical factors. Today, I’ll explore a fascinating historical pattern: the performance of the S&P 500 (SPX) between U.S. presidential Election Day and Inauguration Day. Historical data reveals an intriguing trend often discussed in trading circles — the “Buy the Election, Sell the Inauguration” strategy. Let’s break it down based on the performance of the SPX from 1980 to 2020, a period encompassing significant political and economic shifts. Election Day to Inauguration Day: The Numbers Here’s how the SPX behaved during each election cycle: Key Observations 1.  Election-to-Inauguration Gains: The S&P 500 typically sees positive returns during this period, with only two exceptions: 2000 and 2008. The 2000 election reflected the dot-com bubble’s uncertainty, while 2008 was marked by the global financial crisis. The standout year is 2020, with a massive...
Read more

Trade Ideas for EUR/USD: Insights on ECB, FOMC, and Market Volatility

Image
The upcoming ECB and FOMC meetings present a high-stakes environment for traders, with EUR/USD likely to experience significant volatility. As an analyst, I’ve gathered and evaluated the data to develop a trade idea rooted in evidence. Here’s the breakdown: ECB: A Balancing Act Between Inflation and Growth The ECB  is   at   an   important juncture . Inflation is  currently  2%,  while  core  is   sticky   at 2.7%.  Growth ,   though,  remains weak, with Q3 GDP up  just  0.4%. Lagarde has acknowledged  the  challenges -especially   the slowdown in  the  services and manufacturing sectors. Key Evidence: Core inflation shows no meaningful decline, pressuring the ECB to maintain its hawkish stance. Weak productivity and tepid GDP growth may tilt the ECB toward signaling a dovish pivot, particularly if forward-looking data continues to deteriorate. German 10-year Bund yields remain stabl...
Read more

EUR/USD Dynamics: Navigating a Challenging Economic Landscape

Image
The EUR/USD exchange rate has been under pressure for an extended period, weighed down by a convergence of economic, political, and monetary challenges reshaping the pair’s outlook. Economic Indicators: A Weak Pulse in Europe Recent Purchasing Managers’ Index (PMI) data for the Eurozone presents a concerning picture of stagnation. The manufacturing sector remains under significant strain, with Germany, the EU’s economic powerhouse, struggling due to industrial contractions, energy crises, and structural changes. These factors continue to drag on the single currency. Key PMI Insights • Manufacturing PMI (November 2024): 45.3 (contraction) • Services PMI (November 2024): 48.6 (marginal contraction) • Composite PMI: 47.1 (indicating overall economic contraction) The subdued PMI readings highlight: • A struggling manufacturing sector • Subdued service sector performance • Declining business confidence • Elevated risks of recession U.S. Dollar ...
Read more