A highly-anticipated inflation reading and the Federal Reserve’s last policy decision of the year will serve as highlights during what should be the final week of major economic news in 2022.
On Tuesday, the closely-watched Consumer Price Index (CPI) for November may foretell how much higher rates could go in the coming year.
And on Wednesday afternoon, the Fed’s latest monetary policy decision will almost certainly deliver to investors the seventh and final interest rate increase of 2022.
The government’s retail sales report out Thursday morning will add to a consequential week on Wall Street.
All of this coming as investors look to rebound after the S&P 500 and Dow suffered their worst weekly declines since late September.
Economists project headline CPI rose 0.3% last month, a marginal deceleration from the 0.4% increase seen in October, estimates compiled by Bloomberg show. On an annual basis, CPI likely rose 7.3% in November, down from the prior year-over-year reading of 7.7%.
Core CPI, which strips out the volatile food and energy components of the report and is closely tracked by the Fed, is expected to have risen 6.1% over the same month last year, slightly less than the 6.3% seen in October.
While a continued downtrend in inflation is expected thanks to falling energy prices, strategists at Bank of America emphasize the inflation problem for policymakers and the economy remains “under the hood,” with a potential decline in core prices perhaps only the result of holiday discounting and a decline in used car prices. Meanwhile, shelter inflation is expected to remain sticky.
“We expect core services excluding shelter inflation, which is inextricably tied to wages and the labor market, to remain elevated,” the economics team at Bank of America led by Michael Gapen said.
On Wednesday, members of the Federal Open Market Committee (FOMC) are poised to lift rates by 50 basis points, a slowdown from the 0.75% increases delivered over the past four meetings.
Lighter than expected inflation data isn’t expected to deter officials from raising their benchmark policy rate by the projected 0.50% at the conclusion of their meeting. The FOMC will announce its latest policy decision at 2:00 p.m. ET on Wednesday, as well as release updated economic projections, with Fed Chair Jerome Powell scheduled to hold a press conference beginning at 2:30 p.m. ET.
Powell is expected to continue to push back against the “pivot” narrative — or the view from investors the Fed may stop tightening financial conditions sooner than implied by its forecasts. But a positive surprise (read: lower) on the inflation front may stoke optimism around a policy shift that could overpower any hawkish messaging from Powell.
“The Fed is used to holding center stage, but Wednesday’s policy announcement could end up being overshadowed by the November CPI data,” Capital Economics chief North America economist Paul Ashworth said in a note. “If we’re right and core prices increased by another more muted 0.3% month-over-month last month, then it may not matter how hawkish the Fed’s new interest rate projections are, markets will ignore them.”
Fed Chair Powell signaled in a speech last month at the Brookings Institution in Washington D.C. that a moderation in interest rate increases may be imminent, citing the lagged impacts of monetary policy. But wage inflation from a continuously strong labor market continues to pose a problem for Fed officials.
November’s jobs report saw non-farm payrolls rise by 263,000, bringing the three-month average to a robust 272,000 and revising away the moderation in average hourly earnings. The labor force participation rate fell to 62.1%, suggesting a substantial amount of job openings remain.
“All of this suggests to us that Chair Powell will lean hawkish in his press conference, pushing back against easing in financial conditions and reminding investors that a slower pace of hikes does not mean a lower terminal rate,” Bank of America said in its report.
BofA’s baseline forecast sees the federal funds rate peaking at a target range of 5%-5.25% in the middle of 2023, but Gapen, the bank’s chief economist, said in a recent call with reporters it may go as high as 6% given the labor market’s continued momentum. The Fed funds rate currently stands in a range of 3.75%-4%.
“The only way to bring inflation back towards target on a sustained basis is to slow down the labor market.” strategists at BofA noted.
Once the Fed and inflation drama are out of the way, the Commerce Department is set to release its monthly retail sales report for November on Thursday. Economists expect headline sales fell 0.2% over the month after climbing 1.3% in October, per Bloomberg consensus estimates.
Retail sales activity excluding auto and gas likely rose just 0.1%, down from 0.9% the prior month. The expected softening in consumer spending accounts for a payback in factors that boosted October’s reading like rising gas prices, a one-time stimulus check to Californians, and extended Amazon prime day specials. This month, the print was influenced by a continued rotation from goods to services spending and large discounts amid elevated retailer inventories.
Elsewhere in the queue for traders is a lean earnings calendar, with the reporting season mostly at a lull. Notable reports due out include Oracle (ORCL), Lennar (LEN), Adobe (ADBE), and Darden Restaurants (DRI).
Monday: Monthly Budget Statement, November (-$248.0 billion expected, $191.3 billion)
Tuesday: NFIB Small Business Optimism, November (90.5 expected, 91.3 during prior month); Consumer Price Index, month-over-month, November (0.3% expected, 0.4% during prior month); CPI excluding food and energy, month-over-month, November (0.3% expected, 0.3% during prior month); Consumer Price Index, year-over-year, November (7.3% expected, 7.7% during prior month); CPI excluding food and energy, year-over-year, November (6.1% expected, 6.3% during prior month); CPI Index NSA, November (298.078 expected, 298.012 during prior month); CPI Core Index SA, November (300.429 expected, 298.012 during prior month); Real Average Hourly Earnings, year-over-year, November (-2.8% during prior month, downwardly revised to -2.7%); Real Average Weekly Earnings, year-over-year, November (-3.7% during prior month, downwardly revised to -3.5%)
Wednesday: MBA Mortgage Applications, week ended Dec. 9 (-1.9% during prior week); Import Price Index, month-over-month, November (-0.5% expected, -0.2% during prior month); Import Price Index excluding petroleum, month-over-month, November (-0.8% expected, -0.2% during prior month); Import Price Index, year-over-year, November (3.1% expected, 4.2% during prior month); Export Price Index, month-over-month, November (-0.5% expected, -0.3% during prior month); Export Price Index, year-over-year, November (5.7% expected, 6.9% during prior month); FOMC Rate Decision (Lower Bound), Dec. 14 (4.25% expected, 3.75% prior); FOMC Rate Decision (Upper Bound), Dec. 14 (4.50% expected, 4.00% prior); Interest on Reserve Balances Rate, Dec. 15 (4.40% expected, 3.90% prior)
Thursday: Empire Manufacturing, December (-0.5 expected, 4.5 during prior month); Retail Sales Advance, month-over-month, November (-0.2% expected, 1.3% during prior month); Retail Sales excluding autos, month-over-month, November (-0.2% expected, 1.3% during prior month); Retail Sales excluding autos and gas, month-over-month, November (0.1% expected, 0.9% during prior month); Retail Sales Control Group, November (-0.1% expected, 0.7% during prior month); ); Initial jobless claims, week ended Dec. 10 (232,000 expected, 220,000 during prior week); Continuing claims, week ended Dec. 3 (1.650 million expected, 1.671 during prior week); Philadelphia Fed Business Outlook Index, December (-10.0 expected, -19.4 during prior month); Industrial Production, month-over-month, November (0.1% expected, 0.1% during prior month); Capacity Utilization, November (79.8% expected, 79.9% during prior month); Manufacturing (SIC) Production, November (0.1% expected, 0.1% during prior month); Business Inventories; October (0.4% expected, 0.4% during prior month); Net Long-Term TIC Flows, October ($118.0 billion); Total Net TIC Flows, October ($30.9billion)
Friday: S&P Global U.S. Manufacturing PMI, December Preliminary (46.8 expected, 46.4 during prior month); S&P Global U.S. Services PMI, December Preliminary (47.9 expected, 47.7 during prior month); S&P Global U.S. Composite PMI, December Preliminary (46.5 expected, 46.2 during prior month)
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), Trip.com (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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