US initial jobless claims jumped sharply by 33k to 258k in the week ending October 5, well above expectation of 231k. That’s also the highest level since mid-2023. Four-week moving average of initial claims rose 7k to 231k.
Continuing claims rose 42k to 1861k in the week ending September 28. Four-week moving average of continuing claims rose 4.5k to 1832k.
Following the ECB’s 25bps rate cut in September, the minutes reveal a cautious stance on future monetary easing, emphasizing the need to rely on a broader evaluation of data, rather than any single metric. While members agreed that further reductions in policy restrictiveness would depend on incoming data, they stressed that “data-dependence” should not be misinterpreted as “data point-dependence” , and mechanical response to short-term inflation figures.
The committee highlighted that a “gradual and cautious approach” remains appropriate, as uncertainties around inflation persist. Despite some signs of improvement, it is still too early to declare the inflation battle won. Concerns over upward revisions in core inflation projections and recent surprises in services inflation were also noted.
ECB emphasized that the “real test” of inflation stability would come in 2025, when the impact of wage growth and productivity gains would be clearer.
For now, markets expect another rate cut at the upcoming October meeting, with a follow-up move in December also largely anticipated.
Japan’s PPI rose by 2.8% yoy in September, a notable increase from the previous month’s 2.6% yoy and well above the market’s expectation of 2.3% yoy.
A significant development was the shift in import prices. Yen-based import price index dropped sharply by -2.6% yoy, turning negative for the first time in eight months. This is a stark reversal from the 10.7% yoy rise recorded as recently as July. Export prices also followed a similar downward trend, falling by -1.0% yoy after previously rising by 2.5% yoy.
On a month-over-month basis, PPI remained flat at 0.0% mom, while yen-based import price index decreased by -2.9% mom, and the export price index fell by -1.7% mom. The decline in both import and export prices reflects a combination of softer global demand and a stronger Yen.
San Francisco Fed President Mary Daly expressed a cautious stance on monetary policy in a discussion last night, indicating that “two more cuts this year, or one more cut this year, really spans the range” of likely outcomes.
With inflation cooling, she noted that inflation-adjusted rates have been rising, which could overburden an economy nearing Fed’s employment and inflation targets. Daly warned that such conditions could “break the economy,” stating her desire to prevent further slowing in the labor market.
In a separate speech, Boston Fed President Susan Collins reinforced this measured approach, stating that she supported Fed’s initial 50bps cut and sees further adjustments as likely.
Collins emphasized the importance of a “careful, data-based approach” as rates are lowered to support the economy while ensuring policy remains adaptable to incoming data.
Fed’s decision to cut interest rates by 50 basis points last month was backed by a “substantial majority,” but the minutes of the meeting revealed a more intense debate among policymakers. Only Governor Michelle Bowman dissented, while others showed mixed views on the appropriate pace of easing.
Some participants expressed that a 25bps cut would have been more suitable given inflation remains elevated, economic growth is stable, and unemployment is low. These participants argued that a smaller reduction could support a “more gradual path” for policy normalization, allowing time to assess the economy’s response. A few also noted that a 25bps move would signal a “more predictable path” to the markets.
Looking ahead, the split in views deepens. Nearly all participants agreed that the upside risks to inflation had diminished, while most observed increasing downside risks to employment. However, the timing and extent of further rate cuts remain debated.
Some participants stressed that waiting too long to ease policy could “unduly weaken” economic activity and employment, with significant costs if such a weakening were “fully under way”. In contrast, others warned that easing “too soon or too much” could risk “stalling or a reversal of the progress on inflation”. Given the uncertainty regarding the “longer-term neutral rate” and its implications, some said it’s “appropriate to reduce policy restraint gradually”.
In a speech today, Dallas Fed President Lorie Logan emphasized the need for a “more gradual path” in reducing the fed funds rate following last month’s 50bps cut. She stated that this approach would better balance the dual mandate of controlling inflation while maintaining healthy employment levels.
“Inflation and the labor market are in striking distance of our goals rather than seriously overheated,” Logan noted, explaining “less-restrictive policy” would help avoid overcooling the job market while bringing inflation sustainably back to target.
Logan also expressed concerns over uncertainties surrounding inflation, consumer spending, and economic activity, which remain robust despite ongoing monetary tightening. “I continue to see a meaningful risk that inflation could get stuck above our 2% goal,” she said.
“These risks suggest the FOMC should not rush to reduce the fed funds target to a ‘normal’ or ‘neutral’ level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices,” Logan said.
ECB Governing Council member Martins Kazaks reiterated his support for lowering interest rates further, pointing to the ongoing economic weakness in the Eurozone.
Speaking during a webcast, Kazaks emphasized the need for continued monetary easing, suggesting that rates should be adjusted step by step.
“If inflation in the next year really returns to a sustainable 2%, interest rates have to be on a neutral level,” he said.
ECB Governing Council member Peter Kazimir struck a cautious tone today, signaling that while a rate cut next week is possible, he remains “not completely convinced” that ECB should move based on just one positive inflation reading.
Speaking to reporters, Kazimir acknowledged that September’s CPI dip below 2% for the first time since 2021 has fueled expectations of a rate cut, but he emphasized the need for a more comprehensive view of the economic data. “And we’ll have that key information in December,” he added
He also downplayed concerns about the risk of inflation undershooting the 2% target, stating, “I definitely don’t wake up in a sweat thinking that the inflation rate should be well below 2%.”
“On the contrary, we still lack sufficient confidence that we’re out of the woods and that the goal of sustainably being at 2% is entirely realistic,” he warned.
ECB Governing Council member François Villeroy de Galhau indicated today that a rate cut is “very probable” at the upcoming meeting next week.
Speaking on Franceinfo radio, Villeroy emphasized that this move “won’t be the last” in the current easing cycle. However, he added that the pace of future cuts will depend on how inflation evolves over time.
Villeroy stressed ECB’s commitment to gradual policy adjustments, saying the central bank will avoid making any “volatile moves.” He remarked, “We are used to acting with gradualism, which means resolutely but without making too significant steps.”
On inflation, Villeroy expressed confidence that price levels will stabilize at ECB’s 2% target by early next year in France, and later in 2025 across Europe. However, he noted that fluctuations could still occur in the coming months.
As widely expected, RBNZ cut its Official Cash Rate by 50bps to 4.75%. In its accompanying statement, the central bank emphasized that this move was deemed “appropriate” to achieve and maintain low, stable inflation while minimizing “unnecessary instability” in output, employment, interest rates, and the exchange rate.
RBNZ highlighted that economic activity in New Zealand remains “subdued,” with both business investment and consumer spending showing signs of weakness. Employment conditions are also softening, and low productivity growth is acting as a further constraint on activity.
The central bank pointed out that the economy is now in a state of “excess capacity,” which is encouraging adjustments in price- and wage-setting behavior, aligning with a low-inflation environment. Falling import prices are aiding the disinflation process.
Additionally, RBNZ noted that despite the rate cut, OCR of 4.75% is still “restrictive” and leaves monetary policy well-positioned to handle any near-term surprises.
Fed Vice Chair Philip Jefferson highlighted the shift in the balance of risks between the central bank’s two mandates: inflation and employment.
Jefferson noted at an event overnight that “risks to inflation have diminished,” while “risks to employment have risen,” bringing these factors into closer balance.
He emphasized that the robust performance of the labor market provided Fed with “headroom” to keep policy in restrictive territory for an extended period.
However, with unemployment drifting upward, now at 4.1%, and inflation closer to the 2% target, Jefferson acknowledged it was appropriate to consider “recalibrating” monetary policy.
Boston Fed President Susan Collins highlighted yesterday that further rate cuts will “likely be needed” to support the economy. However, she emphasized that Fed’s policy decisions are not on a “pre-set path” and will remain “remain carefully data dependent”.
Collins noted that while core inflation pressures are still elevated, she is gaining confidence that inflation is gradually returning to the 2% target. She also addressed the labor market, noting that the September jobs report, which exceeded expectations, confirms her view that the job market is “in a good place” — neither too hot nor too cold. She stressed that preserving the healthy labor market conditions is crucial and will require economic activity to grow near trend, which remains her baseline outlook for the coming months.
Atlanta Fed President Raphael Bostic reiterated his firm stance on inflation during remarks overnight, emphasizing that inflation remains “too high”. He added, “I want people to understand that I’m still laser-focused on the inflation target.”
Regarding the labor market, Bostic acknowledged that while it has slowed, it is not weak by any means. He said, adding that monthly job creation is still “pretty robust.” He also noted that the current unemployment rate, though slightly higher than recent lows, aligns with pre-pandemic levels of full employment.
ECB Governing Council member and Bundesbank President Joachim Nagel, one of the central bank’s leading hawks, signaled today that he is “open” to considering another interest rate cut at the next meeting.
Nagel acknowledged the “very encouraging” inflation data, while has recently dropped below ECB’s 2% target for the first time since 2021. But also highlighted that the persistent strength in core inflation suggests the ECB’s inflation battle is not yet over.
Separately, Governing Council member Martins Kazaks pointed out that recent economic data support the case for an interest rate cut in October. Though he’s still concerned with the high uncertainty globally due to “wars, conflicts, and the United States presidential elections.”
Another Governing Council member Bostjan Vasle acknowledged the option for a rate cut. But he stressed that such a decision would not necessarily signal another cut in December, adding that “the markets aren’t dictating our moves.”
In a speech today, Fed Governor Adriana Kugler expressed her support on “shifting attention to the maximum-employment side” of the dual mandate, while maintaining focus on fighting inflation.
While labor market “remains resilient”, Kugler emphasized, the important of “avoiding an undesirable slowdown in employment growth and economic expansion.”
Regarding future rate decisions, Kugler noted that, “If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate to move toward a more neutral policy stance over time.”
However, she remained cautious, suggesting that if downside risks to employment rise, Fed may need to “more quickly” in easing policy to a neutral stance.
In an interview with Slovenia’s Delo newspaper, ECB Executive Board member Frank Elderson highlighted growing risks to economic growth across the Eurozone, noting that “a number of recent indicators suggest that risks of lower economic growth are already materializing.”
Elderson emphasized that ECB remains data-driven, and officials will approach the upcoming October 16-17 meeting “with an open mind.” He reiterated the importance of a genuine and open discussion among members, stressing that no decisions will be made in advance of reviewing the full range of economic data.
In an interview with the Financial Times, New York Fed President John Williams described the latest “dot plot” projections, which show expectations for two quarter-point rate cuts at the remaining meetings this year, as a “very good base case.” He emphasized, however, that these cuts would depend on economic data, rather than following a “preset course.”
Williams also noted that the larger half-point rate cut in September was not “the rule of how we act in the future”. Instead, he explained that the focus for policymakers is to eventually move interest rates toward a neutral setting, one that neither stimulates nor restricts demand.
Minutes from RBA’s September meeting revealed the consensus to keep the cash rate unchanged, as members felt there had been no significant changes since the previous meeting to justify a shift in policy.
Members discussed scenarios that could lead to policy being “held restrictive for a prolonged period or tightened further”. One scenario involved stronger-than-expected “consumption growth”, driven by rising household disposable income. Another involved more “constrained” than expected “aggregate supply” outlook. Financial conditions could turn out to be “insufficiently restrictive”.
Conversely, they acknowledged scenarios where policy could become less restrictive, such as the economy proved to be “significantly weaker than expected”. Or, “inflation proved less persistent than assumed”, even without significant economic weakness.
The board reiterated their vigilance to “upside risks to inflation” and emphasized that policy will remain sufficiently restrictive until inflation is clearly moving toward target. They reiterated that future rate changes could not be “ruled in or ruled out” based on current data, leaving the door open for adjustments if necessary.
Australia’s NAB Business Confidence improved in September, rising from -5 to -2. Business conditions also increased from 4 to 7, with key components such as trading conditions rising from 8 to 12, profitability up from 2 to 5, and employment conditions also climbing from 1 to 5.
A key positive development was the continued easing in input cost pressures. Labour cost growth slowed to 1.7% in quarterly equivalent terms, down from 1.8% in August. Purchase cost growth eased to 1.2%, from 1.6%.
NAB’s Head of Australian Economics, Gareth Spence, noted that while business conditions have been trending lower over the past 24 months due to slower economic growth, capacity utilization remains significantly above its long-run average.
Spence remarked, “This remains an important dynamic for the RBA where, despite slow growth, inflation remains too high, suggesting that the balance of supply and demand in the economy is yet to fully normalize.”
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US CPI slows to 2.4% yoy in Sep, but core CPI rises to 3.3% yoy
US CPI rose 0.2% mom in September, above expectation of 0.1% mom. CPI core (less food and energy) rose 0.3% mom, above expectation of 0.2% mom, and Shelter costs rose 0.2% mom. Food prices rose 0.4% mom. Together, these two indexes contributed over 75 percent of the monthly all items increase. Energy index fell -1.9% mom.
Over the 12-month period, CPI ticked down from 2.5% yoy to 2.4% yoy, above expectation of 2.3% yoy. That’s still the lowest level since February 2021. CPI core ticked up from 3.2% yoy to 3.3% yoy, above expectation of 3.2% yoy. Energy index fell -6.8% yoy while food index rose 2.3% yoy.
Full US CPI release here.