Week of December 11, 2023 in Review

As we dive into the week of December 11, 2023, let's explore the significant economic events and trends that have shaped the financial landscape:

Fed Pivots, Signals Rate Cuts Are Ahead

After a relentless series of eleven rate hikes since March of the previous year, the Federal Reserve has chosen to maintain its benchmark Federal Funds Rate within the range of 5.25% to 5.5%. This decision marks a unanimous consensus among policymakers and follows similar pauses seen in their September and November meetings.

It's important to note that the Fed Funds Rate, responsible for overnight borrowing for banks, is distinct from mortgage rates. The Fed's aggressive rate hikes were designed to temper the economy and curb the inflation surge experienced last year.

Bottom Line: While the Fed hasn't ruled out further rate hikes to keep inflation in check, the meeting suggests that rate cuts may be on the horizon for next year. Notably, the "dot plot," which outlines Fed member forecasts for policy rates in a year, indicates that 15 out of 19 members anticipate cuts ranging from 50 to 100 basis points over the course of the next year.

Continued Progress on Consumer Inflation

In November, the Consumer Price Index (CPI) exhibited a 0.1% increase compared to October, slightly surpassing the consensus estimate of a flat reading. Annually, CPI dropped from 3.2% to 3.1%, hovering near the lowest level witnessed in over two years. Core CPI, which excludes volatile food and energy prices, rose by 0.3%, maintaining the annual reading at 4%, a two-year low.

The moderation in inflation was attributed to declining energy prices, offsetting the rising costs of used cars, motor vehicle insurance, and health insurance.

Bottom Line: Inflation has made substantial headway lower since its peak last year, with the headline reading now at 3.1% (down from 9.1%), and the core reading at 4% (down from 6.6%). The Fed is closely monitoring further progress on inflation as it contemplates a pivot toward rate cuts next year.

Wholesale Inflation Also Cooled

The Producer Price Index (PPI), which gauges wholesale-level inflation, remained stagnant in November. On an annual basis, PPI decreased from a downwardly revised 1.2% to 0.9%, below expectations. Core PPI, which excludes food and energy prices, mirrored the monthly flatness, with the year-over-year reading sliding from 2.3% (also downwardly revised) to 2%.

Bottom Line: This latest PPI report augments the encouraging signs of easing inflation, with November's 0.9% year-over-year reading representing a significant drop from last year's peak of 11.7%. Furthermore, PPI often leads the way for CPI, signaling positive progress ahead.

Retail Sales Stronger Than Expected

November witnessed a rebound in Retail Sales, with a 0.3% increase surpassing expectations of a 0.2% decline. Compared to November 2022, sales were up by 4.1%.

Bottom Line: Despite declining sales at gasoline stations due to lower energy prices, consumers redirected their funds toward other purchases. Retail Sales surged across most categories, with online shopping, in particular, experiencing a boost as non-store retailer sales increased by 1%. Overall, this data reflects a robust start to the holiday shopping season, with inflation continuing to ease.

Initial Jobless Claims at 2-Month Low

In the latest week, Initial Jobless Claims plummeted by 19,000, with 202,000 individuals filing for unemployment benefits for the first time. However, Continuing Claims increased by 20,000, indicating that 1,876,000 people are still receiving benefits after filing their initial claims.

Bottom Line: The decline in Initial Jobless Claims implies a subdued rate of layoffs, as employers strive to retain their workforce. Nevertheless, Continuing Claims reached their second-highest level since November 2021, hinting at a weakening labor market where job-seekers encounter greater challenges in finding employment once they are let go.

For further insights and a comprehensive understanding of the financial landscape, keep an eye on the evolving economic developments. The economic landscape is dynamic, and staying informed is key to making informed financial decisions.

Disclaimer: The information provided in this review is for informational purposes only and should not be considered as financial or investment advice. Economic conditions can change rapidly, and it is advisable to consult with financial professionals for the most up-to-date and tailored guidance.