Inflation data, Fed meeting to set schedule for 2023

The much-anticipated inflation reading and the Federal Reserve’s final policy decision of the year will be the highlights of the final week of major economic news in 2022.

On Tuesday, the closely watched Consumer Price Index (CPI) for November could predict how high rates could go next year.

The Fed’s final monetary policy decision on Wednesday afternoon will almost certainly deliver the seventh and final rate hike of 2022 to investors.

Thursday morning’s government retail sales report will add to the week ahead on Wall Street.

All this comes as investors try to rally the S&P 500 and Dow after their worst weekly declines since late September.

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

Economists project headline CPI rose 0.3% last month, a marginal slowdown 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 7.7% a year earlier.

The core CPI, which strips out the volatile food and energy components of the report and is closely watched by the Fed, is expected to rise 6.1% from the same month last year, down slightly from the 6.3% seen in October.

While inflation is expected to remain on a downward trend thanks to falling energy prices, Bank of America strategists highlight the inflation challenge for policymakers and the economy with a potential decline in core prices, perhaps only the result of holiday discounts. decrease in the price of used cars. Meanwhile, shelter inflation is expected to remain sticky.

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

Members of the Federal Open Market Committee (FOMC) are set to raise interest rates by 50 basis points on Wednesday, a slowdown from the 0.75% increase given in the last four meetings.

The lighter-than-expected inflation data is not expected to deter officials from raising policy rates to a projected 0.50% level at the end of the meeting. The FOMC will announce its final policy decision at 2:00 PM ET on Wednesday, as well as release updated economic forecasts, with Fed Chairman Jerome Powell scheduled to hold a press conference starting at 2:30 PM ET.

Powell is expected to continue to push back against the “mainstream” narrative — or that investors may stop tightening monetary conditions sooner than predicted by the Fed’s forecasts. But a positive surprise (read: down) on the inflation front could boost optimism around a policy shift that could overturn any hawkish message from Powell.

“The Fed is used to taking center stage, but Wednesday’s policy announcement could be overshadowed by November CPI data,” Paul Ashworth, chief North American economist at Capital Economics, said in a note. “If we’re right and core prices are down another 0.3% from last month, then it doesn’t matter how outlandish the Fed’s new rate forecasts are, markets will ignore them.”

In a speech at the Brookings Institution in Washington last month, Fed Chairman Powell hinted that moderation in rate hikes may be imminent, citing the lagged effects of monetary policy. But wage inflation from a persistently strong labor market continues to pose a challenge for Fed officials.

The November jobs report saw nonfarm payrolls increase by 263,000, pushing the three-month average to a solid 272,000 and reversing the moderation in average hourly earnings. The labor force participation rate fell to 62.1%, indicating a significant number of jobs remain.

“All of this suggests to us that Chairman Powell will be cautious in his press conference, arguing against easing monetary conditions and reminding investors that slower growth does not necessarily mean lower terminal rates,” Bank of America said in a report.

BofA’s initial forecast sees the federal funds rate peaking at a target range of 5-5.25% in mid-2023, but Gapen, the bank’s chief economist, told reporters in a recent call that it could reach 6% given the rate hikes. . the steady pace of the labor market. The Fed interest rate is currently in the range of 3.75-4%.

“The only way to keep inflation back on target is to slow the labor market.” BofA strategists noted.

With the Fed and inflation drama out of the way, the Commerce Department is set to release its monthly retail sales report for November on Thursday. Economists expect headline sales to fall 0.2% for the month after rising 1.3% in October, according to Bloomberg consensus estimates.

Retail sales activity, excluding autos and gas, likely rose just 0.1%, down 0.9% from the previous month. An expected softening in consumer spending, rising gas prices, a one-time stimulus check for Californians and extended prime days at Amazon are reversing factors that boosted October’s reading. This month, the print was affected by heavy discounting on the back of continued rotation from goods to service costs and an increase in retail inventories.

Elsewhere in the queue for traders is a lean earnings calendar, with the reporting season largely quiet. Expected reports include Oracle ( ORCL ), Lennar ( LEN ), Adobe ( ADBE ) and Darden Restaurants ( DRI ).

Economic Calendar

Monday: Monthly Budget ReportNovember (-$248.0 billion expected, $191.3 billion)

Tuesday: NFIB Small Business OptimismNovember (90.5 expected, 91.3 in the previous month); Consumer price indexmonth-on-month, November (expected 0.3%, 0.4% in the previous month); CPI excluding food and energymonth-on-month, November (expected 0.3%, 0.3% in the previous month); Consumer price indexNovember (expected 7.3%, 7.7% in the previous month); CPI excluding food and energyNovember (expected 6.1%, 6.3% in the previous month); CPI index NSANovember (298,078 expected, 298,012 in the previous month); CPI Core Index SANovember (300,429 expected, 298,012 in the previous month); Real Average Hourly EarningsNovember of the year (-2.8% in the previous month, down -2.7%); Actual Average Weekly EarningsNovember (-3.7% in the previous month, down -3.5%)

Wednesday: MBA Mortgage ProgramsWeek ending December 9 (-1.9% over previous week); Import Price Indexmonth-on-month, November (-0.5% expected, -0.2% in the previous month); Import Price Index excluding oilmonth-on-month in November (-0.8% expected, -0.2% in the previous month); Import Price IndexNovember (expected 3.1%, 4.2% in the previous month); Export Price Indexmonth-on-month, November (-0.5% is expected, -0.3% in the previous month); Export Price IndexNovember (expected 5.7%, 6.9% in the previous month); FOMC Interest Rate Decision (lower bound)Dec 14 (4.25% expected, 3.75% ex); FOMC Interest Rate Decision (Upper Boundary)Dec 14 (4.50% expected, 4.00% ex); Interest on reserve balances rateDec 15 (4.40% expected, 3.90% pre)

Thursday: Empire ManufacturingDecember (-0.5 is expected, 4.5 in the previous month); Retail sales advancemonth-on-month, November (-0.2% expected, 1.3% in the previous month); Retail sale, except of motor vehiclesmonth-on-month, November (-0.2% expected, 1.3% in the previous month); Retail sales, excluding automobiles and gasmonth-on-month, November (expected 0.1%, 0.9% in the previous month); Retail Control Group, November (-0.1% is expected, 0.7% in the previous month); ); Initial unemployment claimsweek ending Dec. 10 (232,000 expected, 220,000 last week); Ongoing claimsWeek ending December 3 (1.650 million expected, 1.671 in previous week); Philadelphia Fed Business Outlook IndexDecember (-10.0 is expected, -19.4 in the previous month); Industrial productionmonth-on-month, November (expected 0.1%, 0.1% in the previous month); Capacity utilizationNovember (79.8% expected, 79.9% in the previous month); Manufacturing (SIC) ManufacturingNovember (0.1% expected, 0.1% in the previous month); Business inventories; October (0.4% expected, 0.4% in the previous month); Net Long-term TIC flowsOctober ($118.0 billion); Total net TIC flowsOctober ($30.9 billion)

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

Earnings Calendar

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

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

Wednesday: Lennar (LEN), (TCOM), REV Group (REVG), Weber (WEBR), Scorpio Tankers (STNG), Argit 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 correspondent for Yahoo Finance. Follow him on Twitter @alexandraandnyc

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