US Economic Data Determines Fed's Interest Rate Policy Expectations

This week's economic data in the US could become an important factor in assessing how the Federal Reserve's (Fed) interest rate policy will change. Investors will closely watch indicators of economic activity, as well as inflation and labor market data.

On Tuesday, September's durable goods orders data will be released. According to Deutsche Bank analysts, the indicator may remain strong, supported by capital investments in artificial intelligence (AI) and high demand for aircraft. The same day will also see the release of the Conference Board's Consumer Confidence Index, which reflects American consumers' economic sentiment.

However, the week's main events are expected on Thursday. Investors will receive new data on US personal income and consumer spending for September, along with an inflation measure that the Fed pays particular attention to when assessing monetary policy. In addition, the preliminary estimate of US third-quarter economic growth will be published.

Also important for market participants will be the third-quarter Employment Cost Index (ECI), which shows the dynamics of labor compensation and other employment-related costs.

According to Deutsche Bank analysts, a sharper-than-expected increase in this indicator could make it harder to maintain the view that the labor market is no longer adding to inflationary pressure. If wages and employment costs rise rapidly, this could become an additional challenge for the Fed in its fight against inflation.

As a result, this combination of economic data will help investors assess how sustainable economic growth is and whether inflationary pressure still persists. Stronger-than-expected readings could reinforce expectations of tighter Fed policy, while a slowdown in economic activity and a decline in inflation would increase the likelihood of a more accommodative approach.