Market participants will be closely monitoring key inflation data and remarks from several Federal Reserve officials this week, in the wake of last week's significant rate cut.
PMI data will also offer fresh insights into global economic strength, while gold prices are set to extend their record rally.
Inflation Data
The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, is set to be released on Friday. It will show if inflationary pressures have continued to cool as the central bank begins easing its previously restrictive monetary policies.
Economists are forecasting a 2.5% year-over-year increase in the PCE index for August.
The Fed’s most recent projections estimate the inflation rate to fall to 2.3% by year-end and 2.1% by the close of 2025.
Other key economic releases this week include a final reading on Q2 GDP and reports on consumer confidence, durable goods orders, new and pending home sales, and initial jobless claims.
Fed Commentary
Comments from Fed officials will be closely monitored for additional insights on last week's aggressive 50-basis point rate cut. Atlanta Fed President Raphael Bostic will speak first on Monday, followed by Chicago Fed President Austan Goolsbee.
Fed Governor Michelle Bowman, who recently dissented from a Fed decision for the first time since 2005, is scheduled to speak on both Tuesday and Thursday, likely providing her rationale for opposing a rapid rate-cutting strategy.
Fed Chair Jerome Powell is scheduled to speak at the U.S. Treasury Market Conference on Thursday, alongside New York Fed President John Williams and Fed Vice Chair of Supervision Michael Barr.
Market Volatility
The S&P 500 surged to its first all-time high in two months last week following the Fed's rate cut, signaling the beginning of the first U.S. monetary easing cycle since 2020. The index is up 0.8% for September and 19% year-to-date.
However, market optimism may be tested if upcoming economic data does not align with expectations of a "soft landing," where inflation cools without hampering growth. Stocks tend to perform better in such a scenario, as opposed to when the Fed cuts rates amid a recession.
Market sensitivity is also growing around the close U.S. election between Republican Donald Trump and Democrat Kamala Harris, with polls indicating a nearly tied race.
PMI Data
Flash PMI data, starting from Monday, will offer an updated snapshot of the global economy’s health. The eurozone's composite PMI has been expanding for six months, while the UK's has been in expansion for 10 months, reflecting a resilient sterling.
While the Fed's rate cut has staved off recession concerns for the U.S. and possibly the global economy, some risks persist. Business activity in Germany, Europe’s largest economy, fell deeper into contraction in August, and China’s economy continues to struggle, potentially falling short of its 5% annual growth target.
Gold Holds at Record Highs
Gold prices continue to surge, with the precious metal nearing the $3,000 per ounce milestone. Monetary easing by major central banks and heightened demand for safe-haven assets, driven by geopolitical uncertainty and a close U.S. presidential race, are propelling the rally.
Spot gold reached a record $2,572.81 per ounce last Friday and is on track for its best annual performance since 2020, up over 24% year-to-date.
