Anticipated September Fed Rate Cut Despite Steady US CPI Gains: Key Economic Indicators for the Week Ahead

RBA Holds Steady, Australian Dollar Gains Amid Cooling Labor Market – Mexico’s Peso Rebounds

Sydney, Australia – August 14, 2024 – The Reserve Bank of Australia (RBA) today maintained its cash rate target at 3.60%, a decision largely anticipated by markets already pricing in potential future cuts.Futures markets are now fully discounting another rate reduction before the end of the year, with around a 60% probability of a subsequent move. This comes as fresh data reveals a softening in the Australian labor market.

July’s employment figures, released earlier today, show job creation slowing considerably. Australia added approximately 90.6 thousand jobs in the first half of 2025, less than half the 201.0 thousand jobs created in the first half of 2024. the breakdown reveals a similar trend in full-time positions, with 61.2 thousand added compared to 167.4 thousand in the prior period.

The unemployment rate edged up to 4.3% in June,a rise from 4.0% a year earlier. Crucially, this increase isn’t driven by a shrinking workforce, but by a growing one – the participation rate climbed from 66.8% to 67.1% over the same period, indicating more people are actively seeking employment. This dynamic presents a complex challenge for the RBA as it balances controlling inflation with supporting full employment.

Australian Dollar Strengthens Despite Economic Headwinds

Despite the cooling labor market data, the Australian dollar has demonstrated resilience. It reached nearly $0.6495 following US jobs data on August 1st and extended gains to $0.6540 on August 7th before stabilizing. Currently, the AUD/USD pair is trading near the 61.8% Fibonacci retracement level of the decline from the year’s high of $0.6625, around $0.6545. Support remains firm in the $0.6480 area.momentum indicators are trending upwards, suggesting the potential for further gains and challenging the notion that the year’s peak has already been reached.

Evergreen Insight: The Australian labor market is a key indicator of the nation’s economic health. Monitoring both employment figures and the participation rate provides a more nuanced understanding of the economic landscape than simply focusing on the unemployment rate alone. A rising participation rate, while positive in some respects, can put downward pressure on wages and possibly slow economic growth.

---

Mexico’s Peso Recovers as Rate Cut Expectations Build

mexico City, Mexico – August 14, 2024 – The Mexican peso is staging a recovery against the US dollar after a period of weakness linked to dollar strength in July. Despite the recent extension of US-Mexico trade talks having limited market impact, the peso’s attractive carry trade potential continues to draw investor interest.

Banco de México, as was to be expected, lowered its benchmark interest rate by 25 basis points to 7.75%. Analysts believe the prospect of the Federal Reserve resuming its easing cycle could further widen the rate differential, bolstering the peso’s appeal.

Industrial Production and Economic Outlook

June’s industrial production figures are the key data release this week, though their immediate impact on monetary policy is expected to be minimal given the central bank’s next meeting isn’t until September 25th. Mexico’s economy expanded by 0.7% in the second quarter, following a 0.2% increase in the first. However, early forecasts for the third quarter point to a slight contraction, with anticipated declines in consumption, investment, and government spending. A weakening in net exports is also contributing to the cautious outlook.

Peso Technicals Point to Further Gains

The USD/MXN exchange rate peaked at slightly above MXN18.98 on august 1st,before falling to MXN18.5460 by the end of the week. The year’s low was recorded near MXN18.51 in late July. Momentum indicators are now trending lower, and the five-day moving average has fallen below the 20-day moving average. A break below MXN18.50 could open the door to further declines, with a potential target near MXN18.40. Analysts suggest that before the year-end, the peso could strengthen further, potentially reaching MXN18.15-MXN18.20.

Evergreen Insight: Mexico’s economy is heavily influenced by its relationship with the United States. Trade flows, remittances, and US monetary policy all play a meaningful role. Understanding these interconnected factors is crucial for assessing the peso’s long-term prospects. Moreover, monitoring industrial production provides a vital gauge of the country’s manufacturing sector and overall economic health.

What impact could weaker-than-expected building permits have on overall GDP growth projections?

Anticipated September Fed Rate Cut Despite steady US CPI Gains: Key Economic Indicators for teh Week Ahead

Decoding the Fed’s Dilemma: Inflation vs. Growth

Despite consistently warmer-than-expected US CPI (Consumer Price Index) data throughout 2025, market sentiment continues to lean towards a potential Federal reserve rate cut in September. This seemingly paradoxical expectation hinges on a nuanced interpretation of economic indicators beyond just headline inflation. The Fed’s dual mandate – price stability and maximum employment – is creating a complex balancing act. While inflation remains sticky, emerging signs of slowing economic growth are bolstering the case for easing monetary policy. Understanding the key data releases this week is crucial for investors and businesses alike.

This Week’s Critical Economic Data Releases

Several key indicators will shape the narrative this week. Here’s a breakdown of what to watch:

Initial Jobless Claims (Thursday): A sustained increase in jobless claims woudl signal weakening labor market conditions, a primary concern for the Fed. Analysts are predicting a slight uptick to 220,000. This is a leading indicator of potential economic slowdown.

philadelphia fed Manufacturing Index (Thursday): This regional manufacturing survey provides a snapshot of business conditions in the Mid-Atlantic region.A reading below zero indicates contraction. Recent trends have shown volatility, but a continued decline would add to recessionary fears.

Housing Starts & Building Permits (Friday): The housing market,while cooling from its pandemic highs,remains a significant economic driver. Declining housing starts and permits suggest reduced investment and potential drag on GDP growth.

University of Michigan Consumer Sentiment Index (Friday): Consumer confidence is a vital component of economic health. A drop in sentiment could indicate reduced spending and further economic deceleration. The index will be closely watched for inflation expectations.

The Impact of recent CPI Data & Fed Commentary

The latest CPI report, released earlier this month, showed a 3.5% year-over-year increase, exceeding expectations.This fueled speculation that the Fed might delay rate cuts until later in the year, or even consider further tightening. However, Fed officials have consistently emphasized a data-dependent approach.

Recent speeches from key Fed members, including Governor Lisa Cook and New York Fed President Williams, have highlighted the importance of considering a broad range of indicators, not just CPI. They’ve acknowledged the progress made on inflation but also expressed concern about the potential for over-tightening to stifle economic growth. This messaging suggests a willingness to consider a rate cut even with inflation above the 2% target, particularly if the labor market shows significant signs of softening.

Sector-Specific Implications: What to Expect

diffrent sectors will react differently to potential Fed policy changes.Here’s a quick overview:

Financials: Banks typically benefit from higher interest rates, but a rate cut could compress net interest margins. However, a stronger economy spurred by lower rates could offset this effect.

Technology: Tech companies, often reliant on borrowing for growth, generally benefit from lower rates. Reduced borrowing costs can fuel investment and innovation.

Real Estate: Lower mortgage rates would likely stimulate demand in the housing market, perhaps reversing recent declines in home sales.

Consumer Discretionary: increased consumer spending, driven by lower borrowing costs and improved sentiment, would benefit companies in this sector.

Understanding the Yield Curve & Recessionary Signals

The yield curve, specifically the spread between the 10-year and 2-year Treasury yields, remains inverted – a historically reliable predictor of recessions. While the inversion has persisted for an extended period, its depth and duration are key factors. A further deepening inversion would strengthen the case for a Fed rate cut as a preemptive measure to avoid a more severe economic downturn. Monitoring the yield curve alongside other economic indicators is crucial for assessing recession risk.

Fed Funds Futures & Market Probability

Fed Funds Futures currently price in a roughly 65% probability of a 25-basis-point rate cut at the September FOMC meeting (as of August 10, 2025). This probability has fluctuated in response to recent economic data releases and Fed commentary. Investors should closely monitor