The State of the Economy: The Fed, the Consumer Price Index, and Wall Street Rates are All Related to the Fed’s Rate Increases
The Federal Reserve is all but guaranteed to announce Wednesday that it will once again raise interest rates. The last four increases were larger than this one.
Just a half-point increase is what traders are betting on. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
The hope is that inflationary pressures will start tobate so that the Fed can stop hiking rates and prevent the economy from going into recession.
It may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. The rate was higher than expected, but it was not as high as it had been in the previous months.
The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. CPI rose 7.7% year-over-year through October.
“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.
The Feds rate hikes have had limited impact on the economy so far. Yes, mortgage rates have spiked and that has severely hurt demand for housing, but the job market remains strong. Wages are growing, and consumers are still spending. That can’t continue indefinitely.
Wednesday: The Fed meeting, the EU industrial production, UK inflation, and earnings from two websites are all related to this.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Rate cuts may be too late. The recession risks are still high.
The US economy is not in a recession. But are Americans getting tapped out? We will get a better idea of that when retail sales figures are reported on Thursday.
It is possible that consumers were getting a head start on holiday shopping. Retail sales are impacted by inflation since people need to spend more money for things.
The analysts believe that a recession and a reversal of inflationary shocks will allow inflation to fall to less than 3% by the end of the year.
What Do Investors Need to Know About the S&P 500 and How Will They Fare in the Next Three-Year Recessions?
What does that mean for investors? He said people should look for companies that can maintain their profit margins and still have pricing power. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal
(LRLCF).
Friday: Eurozone PMI; UK retail sales; earnings from Accenture
(ACN), Darden Restaurants
(DRI) and Winnebago
(WGO)
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Around this time of year, a lot of research is fascinating but it’s not all that important. The S&P 500 was predicted to close out the year at 5,300 points by analysts last year, but it is not possible to predict what will happen over the next year. Morgan Stanley believed 4,400 to be a more bearish number. The S&P 500 finished Friday at 3,934.
Market analysts are not the only ones. As International Monetary Fund economist Prakash Loungani concluded in a report on the accuracy of economic forecasts, “the record of failure to predict recessions is virtually unblemished.”
Is the United States going to fall into a recession in just three years? Analysts are avoiding or hedging their use of the ‘R’ word but widely see a slowdown in growth, softening of the economy and even “rolling recessions.”
That will lead to a bumpy market. Earnings will be the driver of US equity returns due to high market volatility.
Inflation will fall… A bit: Analysts seem to believe that a moderate recession in the first half of the year will finally cool sky-high inflation, though it will remain above the Federal Reserve’s 2% target level. Still, most economists think it will be enough for the central bank to ease away from its painful interest rate hikes.
Markets make a modest recovery: All of this will lead to a more stable and prosperous second half of the year for markets, analysts believe, and a strong 2024.
The European Financial Crisis During the Second Quarter, with the UK Prime Minister Declaring an End in Disagreement: Implications for Corporate Finance, Consumer Credit, and Debt
The decline comes after their wealth plummeted more than $6 trillion in the second quarter, which was also driven primarily by a drop in stock prices. Federal Reserve data is not adjusted for inflation.
The net worth of households and nonprofit organizations fell by $400 billion in the third quarter. The value of households’ stocks declined by $1.9 trillion, while their real estate holdings increased in value by $700 billion, according to data from the Federal Reserve released Friday.
House prices, meanwhile, inched up by just 0.1% in the third quarter, compared to the prior quarter, according to the Federal Housing Finance Agency House Price Index.
Household debt grew by 6.3% in the third quarter at a seasonally adjusted annual rate, slower than in the prior quarter. The growth of home mortgage debt was less than that of non-mortgage consumer credit in the second quarter.
The bottom line: Americans are not happy about their financial situation. About half said it’s worse than it was a year ago, while around a third said they’re in about the same financial shape, a new CNN poll conducted by SSRS found. Only 16% said they are now better off.
The British government promised a relaxation of financial regulation, just two months after UK markets suffered their worst downturn since the global financial crisis, in order to shore up the country’s banking and insurance industries against growing competition from cities like Amsterdam and Paris.
The measures are called the “Edinburgh Reforms.” There are some changes that will be made to make it easier for companies to list their shares in London.
“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world,” Jeremy Hunt, the UK finance minister, said in a statement.
The effort was initially touted as a “Big Bang 2.0” — a nod to the rapid deregulation of UK financial markets under former Prime Minister Margaret Thatcher in 1986. Since the reforms are expected to be gradual, ministers have moved from that language.
The changes are a bid to maintain London’s role as a global financial hub after Brexit, which, alongside political turmoil, has boosted uncertainty for companies thinking about where to invest.