What’s The Fed Doing?
Ahead of the Federal Reserve’s final policy statement of the year, which is scheduled for release this Wednesday afternoon, the Consumer Price Index (CPI) report for November will provide the final piece of the inflation puzzle.
Highlights of the events will include a press conference by Fed Chair Jerome Powell and a fresh batch of economic projections for the upcoming years from Fed staff.
Over the past six weeks, all three of the major US stock market indices have finished higher. The S&P 500 has increased by almost 20% this year, while the Dow Jones Industrial Average has increased by more than 9%. The Nasdaq Composite saw an increase of about 38%.
The S&P 500 is now less than 5% away from its record closing high.
The ongoing upward trend in the major US stock market indices over the last six weeks, along with the S&P 500’s close closeness to its all-time high, point to the possibility of a market adjustment. Precious metals are a desirable option in this scenario because of their historical resistance to inflationary pressures and market uncertainty.
The markets are pricing in a nearly 100% possibility that the Federal Reserve will maintain interest rates in their current range of 5.25%–5.50% to July 2023 when the Fed makes its final policy decision of the year.
Fed officials will also release an updated Summary of Economic Projections, which includes their “dot plot” that illustrates policymakers’ projected future interest rate movements, in conjunction with this policy decision. Additionally, projections for GDP growth, unemployment, and inflation will be made public.
When Powell last addressed the public on December 1, he referred to the rate-cut rumors as “premature.”
Powell made prepared remarks at Spelman College in Atlanta on December 1. “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said. “We are prepared to tighten policy further if it becomes appropriate to do so.”
Investors will be observing to see if the central bank’s discussion of policy direction is affected by any recent data, particularly the jobs report and inflation number from November.
Michael Feroli, chief economist at JPMorgan, believes Powell won’t talk about rate cuts.
“At the press conference we think Powell will try to move the conversation away from the timing of the first ease by noting that currently the Committee is only considering whether they should stay on hold or tighten policy,” Feroli stated in a client note.
Economists predict the headline November’s CPI increase over the previous year was 3.1%, down from October’s 3.2% increase. For the second consecutive month, prices are fixed on a monthly basis.
The CPI is predicted to climb by 4% over the previous year in November on a “core” basis, which eliminates the erratic food and energy categories. This increase is consistent with the increase observed a month earlier.
The Fed aims for 2% yearly inflation. It is anticipated that monthly core price rises will average 0.3%, which is a rise from the 0.2% month-over-month increase observed in October.
“Similar to last month, we expect a drag on headline [inflation] from falling energy prices with upward pressure remaining on the core segment from components like [owner’s equivalent rents]/rents, insurance, and car maintenance as well as other services,” Thomas Simons, a member of Jefferies’ economics team
The Fed’s preferred inflation indicator, core PCE, and core CPI both recorded their lowest levels of annual inflation since September and April of 2021, respectively, according to data in October. As a result, investors will get their first peek at inflation in November through this report.
Precious metals continue to be a popular and wise investment option as investors wait for November’s inflation data, which comes after the previous month’s lows. They provide a safe haven against future market swings and inflationary pressures.
