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Market Braces for Fed Verdict and Inflation Numbers: Double Dose of Economic Data
Federal Reserve’s Year-End Meeting: A Recap and Future Outlook
The Federal Reserve concludes its last meeting of the year, marking a period during which the central bank played a pivotal role in shaping the U.S. economy and financial markets.
Past Actions and Current Scenario
Last year, inflation stood at a high annual pace of 6.5%, prompting the Fed to raise interest rates for the fourth consecutive meeting, reaching a level of 4.25%. However, the current expectation is that the Fed will maintain interest rates, leaving analysts to ponder when rate cuts may begin, likely between March and May.
Bold Prediction:The Federal Reserve is expected to maintain the federal funds target within a range of 5.25% to 5.50% on Wednesday, December 13, assert economists from Comerica Bank.
Policy Statement and Projections
The Fed’s policy statement is anticipated to acknowledge the recent decline in inflation, emphasizing the need for more evidence of a sustained downward path before considering rate cuts. Additionally, the Fed will update economic and inflation projections, providing insights into potential rate reductions in 2024.
Economic Forecast:Sam Bullard of Wells Fargo predicts a 25 bps decline in the 2024 dot, currently at 5.125%, due to the faster-than-anticipated recession of inflation.
Economic Indicators
The consumer price index for November and the producer price index for December are set for release. Analysts forecast year-over-year numbers at 3% and 1%, respectively.
Inflation Battle and Economic Landscape
The Fed’s fight against inflation receives support from falling gas prices and declining apartment rents. The labor market remains robust, with 199,000 jobs added and a reduced unemployment rate of 3.7%, fueling hopes of a “soft landing” for the economy.
Consumer Sentiment and Political Independence
Recent economic reports have boosted consumer sentiment, reflecting positivity about the present and future economy. As attention shifts to 2024, an election year, the Fed’s political independence becomes crucial, suggesting potential rate cuts before the summer’s election-related activities begin.
Key Economic Metrics Ahead
Thursday brings retail sales data for November, expected to show a pullback from October’s surge. Gasoline price drops may impact the top-line number, given that retail sales are not adjusted for inflation.
Market Trends
Despite concerns raised by the jobs report, markets have responded positively to the trend of decreasing inflation and sustained economic growth. The S&P 500 reached a new 2023 high, registering a nearly 20% increase for the year. Treasury yields rose briefly but have stabilized, and mortgage rates have declined from October, standing at 7.34%.