The Fed’s Favorite Inflation Measure
Last week, the Federal Reserve announced its final interest rate decision of 2023. The central bank held the federal funds rates steady for the third meeting in a row, and signaled rate cuts may come in 2024, driving the Dow Jones Industrial Average to all-time highs.
But of course, these rate cuts that the market seems to already be penciling in are no done deal. The Fed is and has been data-driven, not least because controlling inflation isn’t its only task (ensuring “maximum” employment is too).
For the week ahead, investors are turning their eyes to the Fed’s favorite inflation measure, the personal consumption expenditure price index, or PCE, released by the Bureau of Economic Analysis Friday morning. To be precise, the Fed likes to look at the version stripping out more volatile energy and food prices, the core PCE. Inflation measures have been cooling across the board but both investors and central bankers will likely want to see that trend continued in this week’s November data.
The same report will also give us data on personal incomes and spending in November.
Also of note, next week will be the last full trading week of the year.
• December NAHB Housing Market Index: This measure of homebuilder sentiment fell to its lowest level since December 2022 last month.
• November Building Permits and Housing Starts: Despite interest rate headwinds, October building permits reached their highest level in nearly a year and a half.
• Weekly 30-Year Mortgage Rate Update: Last week, mortgage rates declined to 7.07%, the lowest level since July.
• November Existing Home Sales: Due to a persistent lack of inventory, home sales fell to their lowest level since August 2010 in October.
• Q3 GDP (Final): The prior (second) estimate of Q3 GDP showed the U.S. economy grew 5.2% on a seasonally adjusted annualized basis, more than the initial estimate of 4.9%.
• Weekly Jobless Claims: Last week, initial claims highlighted relative tightness in the labor market, hitting their lowest level since mid-October.
• November Durable Goods Orders: Orders of long-lasting manufactured goods fell 5.4% in October, much more than expected.
• Accenture (ACN), FuelCell Energy (FCEL), and FedEx (FDX): Investors will watch FedEx earnings and its package volume in particular for consumer spending trends. Last quarter, the logistics company announced demand surcharges for the holiday season.
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