Strikes, Dot Plots, Energy Prices. How the Fed’s Inflation Battle Is Getting Tougher.

One key question is whether the Fed will hike again before the year is out–the market thinks it won’t–and another is when it will start cutting rates.

While the dot plot is useful to a certain extent, the Fed is in data-dependent mode so the future path of rates could change quickly along the way.

Inflation data, in particular, will be weighing on officials’ minds–the consumer-price index rose to an annual pace of 3.7% in August, from July’s 3.2%. But it’s not just the headline data—other factors are fueling inflation that the Fed will be monitoring as it looks to reach its 2% target.

The price of energy is one consideration, another is wage increases.

Regardless of the outcome of the pay dispute between the United Auto Workers and the Detroit auto makers, it will only add to inflationary pressures. A resolution would lead to a 40% (or somewhere near that) pay raise for workers, while a long-running strike could drive up car prices.

It’s only one sector–and Ford, General Motors, and Stellantis specifically–but it’s indicative of a broader trend. Airline pilots, freight railroad workers, and UPS employees have all secured hefty pay hikes in recent months.

The last mile of the Fed’s inflation battle was always going to be the hardest, but it’s getting tougher by the day.

—Callum Keown

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UAW versus Auto Makers: Where the Strike Stands

The United Auto Workers’ strike starts the week with a lot of work ahead, as the union and auto makers try to hash out a deal. UAW President Shawn Fain already rejected a 21% pay increase offered by
Stellantis,
calling it a “no go,” while the UAW met with
General Motors
on Sunday.

• Fain took to the Sunday morning talk shows to emphasize his point that worker pay has lagged profit increases made by the car makers, pointing to the 40% pay raises the
  Ford Motor,
  General Motors, and Stellantis CEOs have received over the past four years.

• The UAW initially asked for a 40% wage increase over four years, cost-of-living adjustments, a 32-hour workweek, job protections, and retiree benefits. Auto makers have offered raises closer to 20% over the contract, and other benefits.

• Rep. Nancy Pelosi (D., Calif.) said CEOs making more in one month than what some workers make in a lifetime is “just unjust.” Sen. Bernie Sanders (I., Vt.) told CNN that General Motors’ CEO makes $29 million a year, while new hires at GM make less than $17 an hour.

• Former Vice President Mike Pence told CNN that the Biden administration’s push to increase manufacturing of electric vehicles is causing anxiety among auto workers. Rep. Debbie Dingell (D., Mich.) told CBS that UAW contract negotiations will determine the future of the auto industry in Michigan.

What’s Next: Fain told CBS that if the union doesn’t get better offers, “then we’re going to amp this thing up even more,” including potentially expanding the strike to more manufacturing sites beyond the three picketing locations in Michigan, Missouri, and Ohio.

—Janet H. Cho

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Fed’s Next Rate Decision Takes Center Stage This Week

Monetary policy will be in focus this week as the Federal Reserve and other major central banks announce their latest decisions on interest rates. Futures markets overwhelmingly see the Fed keeping its benchmark rate where it is on Wednesday, while investors will be scrutinizing its latest economic projections.

• A Fed pause keeps rates at 5.25% to 5.50%. On Thursday, the Bank of England is seen raising its target rate to 5.5%, and on Friday, the Bank of Japan is likely to keep its rate unchanged, at negative 0.1%.

• Along with its rate decision, the Fed will release its latest summary of economic projections for inflation, changes in gross domestic product, and unemployment. In June it lowered its projection for unemployment to a rate of 4.1% this year and 4.5% next year.

• While some economists see hope for a soft landing for the economy, CEOs have been cautious. J.P. Morgan CEO Jamie Dimon said the economy is being supported by strong consumer balance sheets and rising wages but risks are ahead.

• The renewal of student-loan payments in October could remove up to $100 billion from Americans’ spending on other goods and services in the next year, The Wall Street Journal reported. Borrowers haven’t had to make payments since March 2020, when the Education Department paused them.

What’s Next: While futures markets are largely in agreement about a Fed pause this week, some traders are putting an approximate 25% probability on the Fed raising rates in November, according to the CME’s FedWatch tool.

—Liz Moyer

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Instacart IPO Next as Companies Test Appetite for New Stock

Instacart, the San Francisco-based delivery app platform incorporated as Maplebear, is set to start trading on Tuesday in an initial public offering that could value it at around $9.6 billion. Like last week’s IPO of
Arm Holdings,
it’s a proxy for investor interest in new stock issues this fall.

• Instacart is aiming to price shares between $28 and $30 tonight. Its valuation would reflect the shift in the market dynamics since it assessed itself at $24 billion in March 2022, following a $39 billion valuation set in a late-stage venture capital round a year before.

• What stock investors will pay depends partly on their faith in the future of the gig economy’s expansion and profitability.
  Walmart,

  Amazon.com,

  Uber Technologies,
  and
  DoorDash
  are competing for a bigger slice of online grocery-buying.

• Instacart had revenue of $2.55 billion last year, up 39% from a year earlier. Fees paid by retailers and customers, including for its premium membership program Instacart+ made up close to three-quarters of the revenue.

• Instacart controls around 22% of the $132 billion U.S. online grocery-delivery market, Evercore analysts said. But higher grocery prices weigh on demand. Through the first six months of 2023, total customer orders were 132.9 million, up from the 132.3 million orders in the same time last year.

What’s Next: After Instacart, marketing automation firm Klaviyo is slated to price its own IPO at around $25 to $27 a share this week, seeking a valuation around $8 billion.

—Liz Moyer and Karishma Vanjani

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Oil Prices Hit 10-Month High Amid Output Cuts

Oil prices headed higher Monday on concerns that the market will be short of supply after Saudi Arabia and Russia extended their coordinated production cuts until the end of the year.

• Brent crude contracts were trading close to $95 a barrel, the highest since November. West Texas Intermediate, the U.S. benchmark, also advanced.

• Saudi and Russian cuts threaten to push the market into deficit over the coming months. Tentative signs that the Chinese economy is picking up after authorities added stimulus may also increase global demand, which could put further upward pressure on prices.

• Separately, the natural gas plant in Australia that has been hit by worker strikes has returned to full production, Chevron said Monday. The Wheatstone plant, which along with the nearby Gorgon facility provides some 5% of the world’s liquid natural gas, was hit by a fault last week. Chevron says the strikes won’t affect output.

What’s Next: The Federal Reserve will be keeping an eye on energy prices as it makes an interest-rate decision this week. Fuel costs could keep inflation higher, which may prompt policy makers to keep interest rates more elevated than otherwise. That would be an additional drag on economic growth.

—Brian Swint

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Cancer Medicine Breakthroughs Offer More Treatment Options

Medicine is making big gains in the fight against cancer, with new treatments enlisting the body’s own immune system to control or eliminate previously deadly tumors, and personalized cancer vaccines that can help the body boost its immune response even when the cancer is very advanced.

• Immunotherapy using drugs called PD-1 and PD-L1 inhibitors have dramatically increased survival times for some deadly cancers, including melanoma and certain lung, bladder, and kidney carcinomas, making it harder for them to hide from the body’s cancer-killing T-cells.

• When melanoma patients in a recent trial were given a PD-1 inhibitor from
  Merck
  combined with personalized cancer vaccines developed with
  Moderna
  after surgery to remove their skin cancer, the drug-vaccine combination reduced the rate of recurrence or death by 44%, the companies said.

• Oncologist James Gulley, co-director of the Center for Immuno-Oncologym told Barron’s that new treatments, early detection, and prevention strategies could help meet President Joe Biden’s “cancer moonshot” goal to cut cancer deaths by at least 50% over 25 years.

• Merck’s Keytruda is widely used by oncologists. Approval of Moderna’s personalized cancer vaccine could take two to four years, but could eventually be used against other cancers besides melanoma, said Kyle Holden, Moderna’s head of development, therapeutics and oncology.

What’s Next: Holden said Moderna, which largely halted work on its cancer vaccines early in the pandemic to focus on the Covid-19 vaccine, plans to expand testing to additional tumor types, including non-small cell lung cancer, which kills more Americans than any other cancer.

—Neal Templin and Janet H. Cho

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MarketWatch Wants to Hear From you.

The rate of U.S. inflation has slowed considerably from a 40-year peak of 9.1% in mid-2022, and it’s gotten an assist from a surprising source: falling medical costs. But that’s about to change. What’s in store for the Fed’s efforts to quash inflation?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner