US Dollar: Fed hiking path and data risks – TD Securities

TD Securities economists anticipate an October Federal Reserve hike, citing hawkish Fedspeak and expectations of further rate increases. They point to robust PCE inflation, modest manufacturing gains, and a softer-than-expected jobs report as factors influencing their outlook. The team expects two additional Fed hikes, with decisions driven by inflation data and labor market resilience.

This week's Fedspeak is expected to mirror the hawkish tone from last week, with key speakers including Waller, Jefferson, Cook, and Kashkari. PCE inflation is anticipated to reflect strong August CPI and PPI reports, with headline inflation at 0.38% m/m (3.8% y/y) and core inflation at 0.32% m/m (3.4% y/y). The focus will be on the BEA's annual revisions, as Y/y inflation may not be revised lower as much as markets anticipate.

Spending is projected to grow to 0.9% (0.5% real) due to robust retail sales. The Fed is expected to implement two more rate hikes in October and January, despite above-target inflation and growing risks. However, the labor market has stabilized with signs of strengthening, and activity data has been positive. The economy can absorb further tightening, and the Fed's actions now reflect the evolving inflation data.