Week in Review: October 8, 2021

Markets managed to eke out modest gains, following a temporary solution to the U. S. debt-ceiling impasses. With time running short to raise the debt ceiling before October 18 – the date by which it was estimated that the U. S. would no longer be able to meet its debt obligations – markets had become increasingly volatile. However, following a short-term extension of the debt ceiling until early December, markets were able to recoup some of the previous week’s losses. Volatility may not subside for long, however, as Congress has just eight weeks  to address the budget and debt ceiling before both expire again.

Investors struggled to discern the effect of the September jobs report. Just six months ago, such disappointing data would likely have been viewed as a “positive” with respect to extending the Federal Reserve’s current monetary policy. However, following the Fed’s September meeting, Federal Reserve Chair Jerome Powell made it quite clear that barring a terrible September jobs report the central bank was poised to move forward with asset tapering at its November meeting.

While weaker than expected, the report likely didn’t rise to the level of terrible in the Fed’s eyes. Thus, with the Fed committed to tapering. Investors were left to accept the report at face value, which is to say that it pointed to weaker-than-expected labor market conditions and did nothing to dissuade from the narrative that third quarter growth likely decelerated significantly from the second quarter. To that end, the Atlanta Fed’s much watched GDPNow forecasting model expects 3Q21 GDP growth to be just 1.3%. The current consensus forecast is more optimistic, calling for 4.8% growth.