Consumer Confidence Rebounds, but the Fed’s Concern Remains Inflation That Is Not Yet Fully Under Control

Bret Kenwell, US Market Analyst at etoro, on the consumer confidence report released today and tomorrow’s Federal Reserve (Fed) meeting.

Consumer confidence rebounds, but the Fed’s concern remains inflation that is not yet fully under control; no rate hike expected tomorrow

After hitting multi-year lows last month, the Conference Board’s consumer confidence index rebounded in October well above expectations, coming in at 91.7, its highest level since June.

This better-than-expected reading comes just days before the midterm elections and is significant, given that concerns about inflation and affordability have weighed on economic sentiment for much of this year. The most recent CPI (Consumer Price Index) report showed inflation at multi-month highs, while oil prices have continued to rise. Although consumer confidence appears to be recovering, purchasing power remains under pressure.

The Federal Reserve is widely expected to keep interest rates unchanged this Wednesday; however, the decision itself may be the least relevant aspect of the announcement. With inflation still above target and oil prices continuing to climb, any comments on the possibility of a rate hike in December will be closely scrutinized.

Policymakers face two opposing forces: inflation is not yet fully under control, while job market momentum has lost steam. If the Fed’s statement and comments suggest a greater likelihood of a rate hike in December, risk assets could come under pressure, even if rates are held steady this week. Conversely, if the probability of a December hike decreases, both stocks and cryptocurrencies could find some relief. Investors will also closely watch the 10-year Treasury yield, observing in particular whether the 5% level—previously considered a ceiling—begins to establish itself as a floor instead.

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