Markets Watch Fed Amid Powell Speech and Data Delays

• Wednesday FOMC minutes and Thursday Powell speech anchor a critical week ahead.
• The government shutdown delays the September jobs report, creating policy uncertainty.
• Markets currently expect a 90% probability of a 25 basis point cut at the October 29 meeting.

Financial markets face a pivotal week as Federal Reserve communications take center stage amid a data vacuum created by the ongoing government shutdown. Fed Chair Jerome Powell’s Thursday speech at a community banking conference and Wednesday’s release of September FOMC meeting minutes will provide crucial signals about monetary policy direction.

The September jobs report, originally scheduled for October 3, remains indefinitely delayed due to the shutdown. This leaves Fed officials without critical labor market information ahead of their October 29 policy meeting, where markets currently expect a 90% probability of a 25 basis point rate cut.

Recent private sector data has shown weakness, with ADP reporting 32,000 private sector job losses in September. The unemployment rate reached 4.3% by August, adding urgency to Fed deliberations about labor market conditions.

Key Economic Releases Scheduled This Week

Tuesday brings NY Fed inflation expectations data, which will offer insights into the consumer price outlook. Recent readings showed one-year inflation expectations at 3.2%, above the Fed’s 2% target.

Wednesday’s FOMC minutes from the September 16-17 meeting will reveal internal discussions that led to the rate cut. Powell is scheduled to speak on Thursday, marking his first major public appearance since the September rate cut. The Fed Chair has emphasized that “policy is not on a preset course,” indicating flexibility in response to incoming data. However, the absence of traditional employment statistics complicates this data-dependent approach.

Governor Michelle Bowman has advocated for more aggressive cuts, stating, “it takes a lot less to support the labor market with the federal funds rate than it is to fix it after it’s broken.” This dovish perspective from Fed officials adds weight to Powell’s upcoming commentary.

Market Positioning Creates Volatility Risk

Current market conditions show stretched valuations with Bitcoin trading above $123,000 and the S&P 500 at record highs despite government dysfunction. This positioning creates vulnerability if Fed communications deviate from expectations.

Oxford Economics estimates each shutdown week reduces economic growth by 0.1 to 0.2 percentage points. The compounding economic effects add complexity to Fed assessments.

A minority scenario involves the Fed pausing at the October 29 meeting to gather more complete data. Such an outcome would likely cause sharp market reactions, particularly in risk assets already pricing in continued accommodation. Friday closes the week with Michigan Consumer Sentiment data, providing additional perspective on household economic views and inflation expectations.

Related: SEC Goes Skeleton Crew in U.S. Shutdown, Canary Litecoin ETF Left Waiting