U.S. Consumer Confidence Falls to 48 as Markets Await Fed Decision and Big Tech Results
Key Facts
Markets are looking ahead to the Federal Reserve’s October 27-28 meeting amid a mix of weak consumer confidence and persistent price pressures in an economy showing strong activity. The Associated Press expects the central bank to leave its benchmark interest rate unchanged at the end of the meeting, after raising it in September. But inflation remaining above the Fed’s target makes the expected decision a test of how it balances economic resilience against the risk of prices staying elevated. In its report on consumer surveys, Reuters said the University of Michigan’s final reading of its consumer sentiment index was 48.0 in October. That was above economists’ forecast of 46.3, but down from 48.1 in September.
The reading’s comparison with expectations points to a limited positive surprise, not a recovery in household sentiment: the index remained only slightly above its all-time low of 44.8 in May. The director of the University of Michigan’s Surveys of Consumers said, "Purchasing power continues to dominate consumers’ views of the economy." Consumers’ inflation expectations for the coming year rose to 4.7% from 4.6% in September, while their expectations for the next five years increased to 3.5% from 3.4%. Weak confidence coinciding with rising price expectations means the cost-of-living squeeze remains part of households’ assessment of the economy. These figures put inflation expectations at the center of the monetary policy debate, while the Federal Reserve’s target remains 2%.
On activity, S&P Global’s flash manufacturing Purchasing Managers’ Index rose to 56.0 in October from 55.9 in September, its highest level in 53 months. The broader picture was not as strong: the composite output index fell to 57.6 from 58.4. S&P Global said the survey readings were consistent with annualized gross domestic product growth of 5.0%. At the same time, selling prices rose at their fastest pace since August 2022, exceeding a level consistent with the 2% inflation target. The data therefore combine signs of continued growth with indications that price pressures could complicate the path to lower inflation.
Companies attributed higher input costs to oil, energy, fuel and shipping prices. Supply bottlenecks and a backlog of orders also helped companies pass increases on to customers, explaining the acceleration in selling prices even as the composite index fell from September. Minutes of the September meeting said resilient economic data, persistent inflation and geopolitical tensions that pushed energy prices higher had affected asset prices. At that meeting, the Fed raised its target range for interest rates to 3.75%-4.00% and said inflation remained elevated relative to its 2% target. The minutes also showed that investors had been leaning toward a 25-basis-point increase in September, and that the Open Market Desk survey indicated a meaningful likelihood of policy tightening of at least 25 basis points by year-end.
On the outlook, an article on Seeking Alpha said the chance of a rate hike at the October meeting was very slim, and that a 25-basis-point increase to the midpoint of the 5% range was expected at the December meeting. That is an estimate reported in the article, not independently verified market pricing. The Federal Reserve has scheduled its next meeting for December 8-9. In the bond market, the U.S. 10-year Treasury yield rose to 4.99% on October 23, from 4.96% late in the previous Thursday’s session. An Associated Press report linked market pressures to rising oil prices and U.S. inflation remaining above 3%.
Attention is also turning to the September personal income and spending report, due October 29 at 8:30 a.m. U.S. time, which includes personal consumption expenditures data. The index is expected to show inflation rising 3.7% in September, compared with the Fed’s 2% target, according to the Associated Press. The initial estimate of third-quarter gross domestic product is due at the same time, adding an activity reading to the price indicators. In earnings season, Alphabet reports results Wednesday, followed by Intel and Amazon on Thursday. The Associated Press said investors are watching whether heavy spending on artificial intelligence will translate into future growth, at a time when expected S&P 500 earnings-per-share growth in the second quarter of 2027 is about 3.6%, compared with a 2.8% contraction in the second quarter of 2023, according to a Seeking Alpha article.
The test for the three companies centers on returns from technology spending against the cost of financing. An Associated Press report noted that companies benefiting from the AI wave are borrowing to fund some of their investments, and that higher interest rates make those loans more expensive. Angelo Kourkavas, an investment strategist at Edward Jones, said in a research note that investors are focused on AI economics, particularly "the large upfront costs of building AI infrastructure, and the uncertainty over when those investments will pay off." The S&P 500 closed at 7623.68 on October 23. The next milestones are the Fed’s decision at the conclusion of its meeting on October 28, then inflation and GDP data on October 29, before the December 8-9 meeting.