UBS: The Fed - FJElite
The Fed's dual mandate is to pursue maximum employment and stable prices. The case for additional tightening therefore depends mainly on inflation and labor-market conditions.
Inflation remains above the Fed’s target, which supports the case for tightening policy further. However, the direction of travel also matters. As we believe year-over year inflation will ease around the turn of the year as earlier energy-price increases drop out of the comparison, policymakers may be more willing to wait for additional evidence.
Labor-market data are equally important. The latest employment report was weaker than consensus expectations, including a negative nonfarm payrolls figure. The next week’s labor market releases—starting with JOLTS data on Tuesday and ending with nonfarm payrolls and the unemployment rate on Friday—will be closely watched. A second set of weak readings would reduce the case for a September hike further.
Overall, the data released since the previous Fed meeting do not, in our view, provide a materially stronger case for a rate increase. We therefore expect the Fed to hold rates steady.