The Federal Reserve’s policy meeting is the big event for the week ahead, but Tuesday’s consumer inflation report could have more influence on markets and even help set the central bank’s agenda. . The consumer price index is unlikely to have an impact on the Fed’s decision to raise rates by the widely expected half-percentage point on Wednesday. But it could influence the tone after the meeting, both in the statement from the Federal Open Market Committee and in how Fed Chairman Jerome Powell describes the central bank’s battle with inflation at the end of the month. the two-day meeting. The CPI is expected to rise 0.3% on the stock and 0.4% for the core, which excludes food and energy, according to Refinitiv. This compares to an increase of 0.4% for headline inflation and 0.3% for core inflation in October. Inflation and a hawkish Fed “I think the data can influence his press conference and how hawkish he is,” said John Briggs of NatWest Markets. “If we have a stronger CPI, it could underline that we need to go further.” Briggs said the report should not affect the Fed’s quarterly inflation and interest rate outlook, which will be released with the policy statement on Wednesday afternoon. If the CPI is hotter than the 7.7% year-over-year increase in October, the president could warn of a more aggressive program for the Fed, Briggs said. “That would make him be aggressive on two fronts. The destination [for rates] could be higher, and the second is that rates are going to stay higher for longer,” Briggs said. currently at 3.75% to 4%, after six rate hikes. The Fed is expected to trim the size of its next hike to 50 basis points, after four 75 basis point hikes. One basis point is equal to 0.01 percentage point. The market rallied after the latest CPI, but fell after last Friday’s strong November jobs report and particularly strong payroll data in this release. There were 263,000 jobs created, and wages grew at a higher than expected rate of 5.1% year-over-year Market reaction “I was a bit surprised that we were able to sweep as much as we do the number of salaries,” Briggs said. “If you get a higher CPI report as a result of this, it could create significant market instability ahead of the Fed meeting.” James Paulsen, chief investment strategist at Leuthold Group, said if the CPI print isn’t as hot as expected, it could boost the market. “It could be very bullish, if it’s big enough on the downside,” he said. “If it’s in line, maybe the Fed won’t be a big deal because people will pretty much know what it is. The dollar, the bond market, the stock market to some extent has already discounted and made their decision about 50 basis points.” Paulsen said the market view is changing and investors are more worried about the possible outcomes of Fed tightening than why it is raising interest rates. “I think the markets are increasingly talking and ignoring the Fed. The main fear was inflation,” he said. “The recession has become the main fear.” Stocks were lower in a turbulent week, while bond yields were lower. The S&P 500 was down 3.37% for the week, and the much-watched 10-year Treasury yield was at 3.586%. Some strategists say the market is caught in a downtrend, driven by fear of recession and concerns that earnings will be weaker when fourth quarter results are released. Some expect the market to retest its lows in the first quarter . Paulsen said he doesn’t expect the market to return to its lows. Falling yields should also help equities. Recession fears “If you’re more worried about recession than inflation, that means you’re attracting more bond buyers than sellers,” he said. Bond yields fall as prices rise. “The more aggressively the Fed talks about raising rates, the more recession worries grow. The more bond buyers are drawn in.” Paulsen said he expects it was inflation that drove the market to its lows, and it’s priced in now. “I already see a new round of easing. It’s happening,” he said. He also expects corporate earnings not to be as weak as some analysts expect. The fall in the dollar, the fall in interest rates and the fall in commodity prices contribute to this. “Businesses are benefiting for the first time from lower costs of capital and lower commodity prices. … We’re seeing a lot of stimulus pouring into this economy,” he said. In addition to consumer inflation data, the economic calendar is busy in the coming week. Retail sales, industrial production and the Philadelphia Fed manufacturing survey as well as the Empire State manufacturing survey are released on Thursday. S&P Global Manufacturing and Services PMI is released on Friday. Calendar for the week ahead. 8:30 a.m. Import prices 2:00 p.m. Fed statement and projections 2:30 p.m. Briefing by Fed Chairman Jerome Powell, Thursday Earnings: Adobe, Jabil 8:30 a.m. Initial jobless claims 8:30 a.m. Retail sales 8:30 a.m. Empire State Manufacturing 8:30 a.m. Philadelphia Fed Manufacturing 9:15 a.m. Industrial Production 10:00 a.m. Business Inventories 4:00 p.m. ICT Data Friday Earnings: Accenture, Darden Restaurants 8:30 a.m. CEO Survey 9:45 a.m. S & P Global Manufacturing PMI 9: 45h S&P Global Services PMI
A critical inflation report could be key in the week ahead as the Fed meets