Hassett and Leavitt: Limited October Data Clouds Fed and Wall Street Outlook

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ago 2 hours

Hassett and Leavitt: Limited October Data Clouds Fed and Wall Street Outlook

The financial markets are experiencing significant turbulence as October data remains scarce, creating uncertainty for investors and analysts alike. This situation is primarily due to the recent government shutdown, which has obscured essential economic indicators, particularly ahead of the Federal Reserve’s upcoming interest rate decision in December.

Market Reactions and Declines

Wall Street faced a challenging trading session yesterday. The S&P 500 and Dow Jones Industrial Average each fell more than 1.6%. The Nasdaq Composite experienced a decline of 2.3%, while the VIX volatility index surged over 20%, indicating increased volatility expectations among analysts.

European and Asian Market Performance

European markets mirrored the downtrend seen in the U.S. The London FTSE 100 and Madrid’s IBEX 35 both decreased by over 1%. Germany’s DAX lost 0.79%, showcasing widespread market weakness.

In Asia, Japan’s Nikkei 225 fell by 1.77% at the week’s close. Similarly, the Shanghai Stock Exchange and Hong Kong’s Hang Seng Index saw declines of 0.97% and 1.85%, respectively. Notably, South Korea’s KOSPI dropped a staggering 3.81%, as foreign investors withdrew funds.

Federal Reserve’s Interest Rate Outlook

Uncertainty surrounding the Federal Open Market Committee’s (FOMC) impending interest rate decision contributes to the market’s instability. A month ago, investors anticipated a 95% probability of a 25 basis points cut during the last Fed meeting of the year. However, this likelihood has decreased to a 50/50 chance as FOMC members voice more hawkish sentiments.

According to the CME’s FedWatch barometer, the lack of comprehensive economic data from October complicates the Fed’s assessment. White House Press Secretary Karoline Leavitt noted that critical reports, including the Consumer Price Index (CPI) and jobs data, might not be fully released, leaving the Fed without crucial information.

Impact of Missing Economic Data

Economic advisor Kevin Hassett underscored the challenges posed by incomplete data. He explained that the household survey for October was not conducted, yielding an incomplete employment report. This gap is particularly concerning as the Fed focuses on maintaining a dual mandate of 2% inflation and maximum employment.

Economists highlight the risks of relying on limited data sources. For instance, White House data issued from platforms like DoorDash offers a narrow perspective on inflation and economic conditions. Former Bureau of Labor Statistics Commissioner Erica Groshen warned against using such private data as a replacement for comprehensive federal statistics.

Future Expectations and Speculations

The ongoing uncertainty raises implications for the Fed’s forthcoming decisions. Strategists, like Thierry Wizman from Macquarie Group, suggest that the CPI data might become a priority for release due to its importance in cost-of-living adjustments.

Market observers are focused on upcoming indicators that could influence the Fed’s direction as they navigate this precarious environment. As of now, major indices, including the S&P 500 futures and global stock indexes, remain under pressure as negative sentiment lingers.