Leader Analysts See 50% Chance Fed Will Raise US Interest Rates This Week
Leader Capital Markets analysts estimate a 50% chance the US Federal Reserve will raise interest rates this week, defying market pricing. The review highlights stubborn US inflation, robust activity, and a cautious stance by the Bank of Israel.
Leader Capital Markets analysts project a 50% probability that the US Federal Reserve will raise interest rates this week, diverging significantly from the 10% pricing currently reflected in financial markets. The weekly macroeconomic review, edited by Jonathan Katz and firm economists, points to stubborn inflation figures, robust economic activity, and rising price expectations among American consumers as key drivers that could push the central bank toward a more hawkish stance.
Inflation Pressures and Strong Economic Indicators
September inflation data showed a continued departure from the central bank's target, while recent surveys signal accelerating price pressures. The US composite Purchasing Managers Index (PMI) remained elevated at 57.6 points in October, down slightly from 58.4 points in September. This level aligns with an annual growth rate of approximately 5% in the fourth quarter, following 4% growth in the third quarter. Meanwhile, the selling prices component within the survey registered its fastest increase since the summer of 2022.
Consumer inflation expectations also recorded sharp increases. The University of Michigan's October survey indicated that one-year ahead inflation expectations rose to 4.7%, up from 3.6% in September, while five-year ahead expectations edged up to 3.5%. The US labor market demonstrates continued resilience, with initial jobless claims declining to 194,000 last week compared to 200,000 the previous week. Continuing claims rose marginally to 1.728 million, remaining at relatively low levels according to the review.
European Slowdown and Bank of Israel Caution
In contrast to the United States, the European economic landscape shows signs of cooling. The euro area composite PMI dropped to 51.9 points in October from 53.1 points in September, weighed down by services sector weakness, particularly in France amid local unrest. Consequently, Leader analysts expect the European Central Bank to face difficulties in implementing three additional rate hikes as currently priced by markets, driven by concerns that further monetary tightening could exacerbate economic strains in France.
In Israel, the Bank of Israel maintains a cautious stance and adopted a relatively hawkish tone while leaving interest rates unchanged. Although the inflation rate sits slightly below the center of the target range, the central bank projects it will climb back toward the target in coming months. Furthermore, tradable goods prices have ceased their moderation trend, while geopolitical tensions have elevated Israel's risk premium, leading to a 3.1% depreciation of the shekel against the currency basket since the previous rate decision.
Israeli Economic Activity and Labor Market Trends
The Israeli economy continues to expand, supported by steady domestic activity. The monthly economic activity index, adjusted to exclude production activities abroad such as Nvidia, rose by 0.5% in September, reflecting an annualized growth rate of 4.3% in the third quarter. Credit card purchases advanced by 0.7% in September following a 3% increase in August, while high-tech job postings rebounded alongside robust foreign capital fundraising.
Labor market indicators show participation rising to 62.2% in September from 61.8% in August, with the employment rate ticking up to 60.3%. The unemployment rate edged up slightly to 3% from 2.8% in the previous month, partly reflecting the release of young reservists from military service. Reservist deployment dropped to 14,200 individuals in September, marking the lowest level since the outbreak of the war.
