ECONOMIC WEEK AHEAD: October 12-16

Last week was relatively quiet on the economic data front, but the indicators released pointed to continued economic strength. ADP weekly payroll gains increased for the fifth consecutive week, reaching a three-month high, while jobless claims fell to multi-year lows. The ISM NM-PMI remained solid at 54.9 in September, though its prices paid component jumped to 74.0, the highest since July 2022. Redbook same-store sales rose 8.3% y/y during the week of October 2, signaling continued strength in consumer spending, while the New York Fed's consumer survey showed expected spending growth and one-year-ahead inflation expectations both reaching three-year highs.

The data suggest that the Fed has good reason to be hawkish. Accordingly, September's FOMC meeting minutes showed that most policymakers favored another rate hike by year-end, with several judging monetary policy to be barely restrictive, if at all. We agree that further tightening is warranted. However, recent comments by New York Fed President John Williams, Fed Vice Chair Philip Jefferson, and Governor Christopher Waller suggest flexibility on the timing. The markets assign a 17.2% probability to an October hike and a 71.6% probability of a December hike.