By Carlos Guillen
Equity markets are trading slightly lower in anticipation of the Fed's monetary policy decision, which while the consensus sees as remaining constant, many investors see today's better than expected nonfarm number and higher than expected inflation as a sign that Fed tapering may not be that far out.
Perhaps a bit discouraging today was that increases in the cost of living appeared to climb more than expected this past month. According to the Department of Labor, the Consumer Price Index (CPI-U) in September increased month-over-month by 0.2 percent; this compares with the Street's consensus estimate calling for a 0.1 percent rise. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.1 percent, matching economists' average forecast. From a longer term perspective prices increased 1.73 percent over the trailing twelve months, which was a smaller rate than that reached in the year ago period of 1.99 percent, perhaps showing some disinflation action. But the fact that inflation is running above expectations may actually serve to give the Fed a reason to move away from its current path of very easy monetary policy, despite talks of tapering into the next year. Of course, stock markets did not like this very much and are down as investors speculate what the Fed will do when their decision is delivered at 2:00 p.m.
Quite encouraging this morning was the ADP report, which showed that more than expected jobs were added to the economy and gave hope for a stronger than expected government's numbers when they are delivered next Friday. According to ADP, non-farm private sector jobs increased during October by 130,000, much better than economists' average forecast calling for a 125,000 increase, making 44 months of nonfarm gains.
At the moment stocks have been sliding further as investors get a bit more nervous about the Fed's decision. While today's news was not exactly good for supporting longer term easy monetary policy, we don't believe the Fed will take any out of the ordinary actions today, and we could see further moves to the upside in equity indexes.