Markets Brace for U.S. Jobs, Inflation Data With Focus on Possible October Fed Rate Hike

Expectations for continued strength in U.S. employment and consumer spending are sharpening focus on the possibility of another Federal Reserve interest-rate increase.

Bloomberg reported on September 26 that economists expect U.S. nonfarm payrolls to increase by about 90,000 in September, according to data due on October 2. The unemployment rate is forecast to hold at 4.1%, the lowest level in a year. Expanded corporate capital investment and a recovery in consumer spending are seen supporting the labor market.

Another key release is the August personal consumption expenditures report, due on September 30. Real personal spending, which excludes inflation, is projected to rise 0.5% from the previous month, marking the biggest gain in more than a year. The PCE price index, the Fed's preferred inflation gauge, and the core PCE price index, which excludes food and energy, are also projected to accelerate from a month earlier.

The combination of firm growth and mounting price pressure is also increasing the likelihood of further Fed tightening. Markets are giving greater weight to the possibility that the Fed, after raising its benchmark rate this month, could deliver another 0.25 percentage-point increase at its October meeting. Investors will look to the latest jobs and inflation data for clues on the path of monetary policy.

In Asia, investors are also watching interest-rate decisions and inflation data from major economies. The Reserve Bank of Australia will hold a policy meeting on September 29, while Indonesia and South Korea will release inflation data on October 1 and October 2, respectively. A key variable is how rising global oil prices tied to the Middle East conflict and food-price instability linked to El Niño affect inflation.

Europe is also expected to face stronger inflation pressure. Euro-area inflation data due on October 2 is forecast to show a 3.7% increase, which would mark the highest level in three years. Rising energy prices are pushing up consumer prices and fueling speculation that the European Central Bank could deliver its third interest-rate increase of the year.

In the U.S., the Job Openings and Labor Turnover Survey is due on September 29, followed by the Institute for Supply Management's September manufacturing index on October 1. The run of economic reports is expected to test the durability of the U.S. expansion and inflation pressure, potentially increasing volatility across global financial markets.