Inflation data, Fed meeting will set the stage for 2023: what to know this week

Inflation data, Fed meeting will set the stage for 2023: what to know this week

A highly anticipated inflation reading and the Federal Reserve’s final policy decision of the year will serve as highlights in what is expected to be the last week of major economic news in 2022.

On Tuesday, the closely watched consumer price index (CPI) for November could predict how far rates could rise in the year ahead.

And on Wednesday afternoon, the Fed’s latest monetary policy decision will almost certainly hand investors the seventh and final interest rate hike of 2022.

The government’s retail sales report released Thursday morning will add to a straight week on Wall Street.

It all comes as investors look to rebound after the S&P 500 and Dow suffered their worst weekly declines since late September.

WASHINGTON, DC - NOVEMBER 30: U.S. Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution on November 30, 2022 in Washington, DC.  Powell discussed the economic outlook, inflation and the labor market.  (Photo by Drew Angerer/Getty Images)

U.S. Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution November 30, 2022 in Washington, DC. (Photo by Drew Angerer/Getty Images)

Economists forecast that the headline CPI rose 0.3% last month, a marginal deceleration from the 0.4% increase seen in October, according to estimates compiled by Bloomberg. On an annual basis, the CPI likely rose 7.3% in November, down from the previous year-over-year reading of 7.7%.

Core CPI, which excludes the volatile food and energy components from the report and is closely monitored by the Fed, is expected to have risen 6.1% from the same month last year, or a little less than the 6.3% observed in October.

As a continued downward trend in inflation is expected thanks to falling energy prices, Bank of America strategists point to the inflation problem for policymakers and the economy remains “under the hood,” with a potential drop in base prices possibly solely the result of holiday discounting and lower used-car prices. Meanwhile, housing inflation should remain sticky.

“We expect core services excluding housing inflation, which is inextricably linked to wages and the labor market, to remain elevated,” said Bank of America’s economics team led by Michael Gapen.

On Wednesday, members of the Federal Open Market Committee (FOMC) are set to raise rates by 50 basis points, a slowdown from the 0.75% increases announced in the past four meetings.

Softer-than-expected inflation data shouldn’t deter officials from raising their benchmark policy rate by the 0.50% expected at the end of their meeting. The FOMC will announce its latest policy decision at 2:00 p.m. ET on Wednesday, along with updated economic projections, with Fed Chairman Jerome Powell due to hold a press conference beginning at 2:30 p.m. ET.

Powell is likely to continue to push back against the “pivot” narrative – or investors’ view that the Fed may stop tightening financial conditions sooner than its forecast implies. But a positive (read: weaker) surprise on the inflation front could stoke optimism around a policy shift that could crush any hawkish message from Powell.

“The Fed is used to taking center stage, but Wednesday’s policy announcement could end up being overshadowed by November’s CPI data,” Capital Economics’ chief economist said in a note. North America, Paul Ashworth. “If we’re right and core prices rose another 0.3% month-over-month last month, then it doesn’t matter how hawkish the Fed’s new interest rate projections are. , the markets will ignore them.”

Fed Chairman Powell signaled in a speech last month at the Brookings Institution in Washington DC that a moderation in interest rate hikes may be imminent, citing the lagged effects of monetary policy. But wage inflation due to a still buoyant labor market continues to pose a problem for Fed officials.

The November jobs report saw nonfarm payrolls rise by 263,000, bringing the three-month average to 272,000 and revising the moderation in average hourly earnings. The labor force participation rate fell to 62.1%, suggesting that there are still substantial job openings.

“All of this suggests to us that Chairman Powell will lean into warmongering at his press conference, pushing back on easing financial conditions and reminding investors that a slower pace of upside doesn’t mean a lower terminal rate,” Bank of America said in its report. .

BofA’s baseline forecast calls for the federal funds rate to peak in a target range of 5% to 5.25% in mid-2023, but Gapen, the bank’s chief economist, said in a recent call with reporters that it could reach 6% given the continued buoyancy of the labor market. The Fed funds rate is currently in a range of 3.75% to 4%.

“The only way to bring inflation back to target in a sustainable way is to slow the labor market.” BofA strategists noted.

With the Fed and inflation drama settled, the Commerce Department is expected to release its monthly retail sales report for November on Thursday. Economists expect overall sales fell 0.2% on the month after climbing 1.3% in October, according to Bloomberg consensus estimates.

Retail sales excluding autos and gasoline probably rose only 0.1%, compared to 0.9% the previous month. The expected slowdown in consumer spending represents a payback of factors that boosted the October reading, such as rising gasoline prices, a one-time stimulus check for Californians and extended Amazon Prime Day specials. . This month, printing was influenced by a continued rotation from spending on goods to spending on services and deep discounts amid high retail inventories.

Elsewhere in the trader queue, there is a lean earnings calendar, with reporting season mostly at a lull. Notable reports expected include Oracle (ORCL), Lennar (LEN), Adobe (ADBE) and Darden Restaurants (DRI).

Economic Calendar

Monday: Monthly budget statementNovember (-$248.0 billion expected, $191.3 billion)

Tuesday: NFIB Small Business OptimismNovember (90.5 expected, 91.3 in previous month); Consumer price indexmonth-over-month, November (0.3% expected, 0.4% in prior month); CPI excluding food and energymonth-over-month, November (0.3% expected, 0.3% in prior month); Consumer price indexYear-over-Year November (7.3% expected, 7.7% in prior month); CPI excluding food and energyYear-over-Year November (6.1% expected, 6.3% in prior month); NSA CPI IndexNovember (298,078 expected, 298,012 in previous month); IPC Core Index AGNovember (300,429 expected, 298,012 in previous month); Actual average hourly earningsyear-over-year, November (-2.8% in the previous month, revised down to -2.7%); Real Average Weekly Earningsyear-on-year, November (-3.7% in previous month, revised down to -3.5%)

Wednesday: MBA Mortgage Applicationsweek ended December 9 (-1.9% over the previous week); Import price indexmonth-over-month, November (-0.5% expected, -0.2% in prior month); Non-oil import price indexmonth-over-month, November (-0.8% expected, -0.2% in prior month); Import price indexYear-over-Year November (3.1% expected, 4.2% in prior month); Export price indexmonth-over-month, November (-0.5% expected, -0.3% in prior month); Export price indexYear-over-Year November (5.7% expected, 6.9% in prior month); FOMC Rate Decision (Lower bound)December 14 (4.25% expected, 3.75% before); FOMC Rate Decision (Upper bound)December 14 (4.50% expected, 4.00% before); Interest rate on reserve balancesDecember 15 (4.40% expected, 3.90% before)

Thursday: Empire manufacturingDecember (-0.5 expected, 4.5 during the previous month); Advance on retail salesmonth-over-month, November (-0.2% expected, 1.3% in prior month); Retail sales excluding autosmonth-over-month, November (-0.2% expected, 1.3% in prior month); Retail sales excluding automobiles and gasolinemonth-over-month, November (0.1% expected, 0.9% in prior month); Retail Control Group, November (-0.1% expected, 0.7% in previous month); ); Initial jobless claimsweek ended December 10 (232,000 expected, 220,000 the previous week); Continuing claimsweek ended December 3 (expected 1.650 million, 1.671 in previous week); Philadelphia Fed Trade Outlook IndexDecember (-10.0 expected, -19.4 in previous month); Industrial productionmonth-over-month, November (expected 0.1%, 0.1% prior month); Ability to useNovember (79.8% expected, 79.9% in previous month); Manufacturing (SIC) ProductionNovember (0.1% expected, 0.1% in previous month); Business inventories; October (0.4% expected, 0.4% in previous month); Long-term net ICT flowsOctober ($118.0 billion); Total net ICT flowsOctober ($30.9 billion)

Friday: US S&P Global Manufacturing PMIDecember preliminary (46.8 expected, 46.4 in previous month); S&P Global US Services PMIDecember preliminary (47.9 expected, 47.7 in previous month); S&P Global US Composite PMIDecember Preliminary (46.5 expected, 46.2 in previous month)

Earnings Calendar

Monday: Oracle (ORCL), Coupa Software (COUP), Universal Technical Institute (UTI), Daktronics (DAKT)

Tuesday: Core & Main (CNM), Photronics (PLAB), Vince Holding Corp. (VNCE)

Wednesday: Lennar (LEN), (TCOM), REV Group (REVG), Weber (WEBR), Scorpio Tankers (STNG), Arqit Quantum (ARQQ)

Thursday: Adobe (ADBE), Jabil (JBL), Live Ventures (LIVE), Trinity Biotech (TRIB), ImmunoPrecise Antibodies (IPA)

Friday: Accenture (ACN), Darden Restaurants (DRI), Winnebago Industries (WGO)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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