Fed Faces Make-or-Break Week as Markets Bet on Rate Hike
The Federal Reserve is facing a crucial test as U.S. economic data rolls in this week, and markets are betting on a rate hike at its next meeting.
UBS noted that Fed Chair Kevin Warsh emphasized the need for clear evidence of inflation cooling down to 2% before making any decisions. With July's PCE data showing a rise above expectations, some measures suggest market-core PCE slowing down to 2.26% annually.
The upcoming August employment report will be closely watched, with forecasts indicating modest payroll growth and an unemployment rate increase to 4.2%. The ISM manufacturing and services surveys will also provide insight into cost pressures.
Despite the rising probability of a rate hike, UBS maintains its base case that further evidence of cooling inflation will allow the Fed to hold rates this year before potential cuts in 2027.