The odds of Fed easing at the September FOMC meeting seem close to 50-50 (with both sides vehemently talking their books - Fed officials and equity managers alike). Recent data has been a bit better: payrolls, claims, retail sales, and industrial production. As UBS' Drew Matus notes, other factors that will play a role include the ISM report, claims reports, and 'fiscal cliff'-related events. However, the primary determinant will be the upcoming August payroll report. The chart below ignores these other factors and offers up the odds of further easing in September based on the base case that Bernanke’s primary concern is the state of the US labor market. July’s 8.3% unemployment rate and payroll gain of 163k put current odds of further easing at 45%.
UBS: What To Expect From Wyoming
We look for Chairman Bernanke’s August 31st speech kicking off the Jackson Hole Conference to explain what mechanisms the Fed would use to ease further but avoid promising that further easing will be forthcoming. We believe that additional easing is conditional primarily on the behaviour of the labor market. Prior to the FOMC’s decision on September 13th, there will be an additional payroll report and two additional initial claims releases....MORE