Inflation and interest rates in the spotlight this week for the economy and the markets | Economy

How high will November’s consumer price index be on Tuesday?

By how much will the Federal Reserve decide to raise interest rates on Wednesday?

And what will November retail sales say about the Christmas shopping season on Thursday?

Many questions this week for the economy and markets with answers to come in a data-packed week that puts the final seal on two of the most important economic trends of 2022: the pace of inflation and the level of rates. of interest.

“Inflation has dominated the economy this year, and the economic outlook largely depends on the path of inflation and how much pain it takes to get inflation back on track,” wrote expert Joey Politano. of the labor market and freelance business blogger. on his blog Apricitas Economics.

The highlight of the week promises to be the Fed’s Wednesday decision on how much to raise interest rates, with experts predicting a 50 basis point hike after Chairman Jerome Powell signaled it earlier this month in a speech at the Brookings Institution.

“The time to moderate the pace of rate hikes could come as early as the December meeting,” Powell said. “We have a wide range of thoughts on where this destination could be, but we could be wrong. We’ll have to see.”

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Analysts will consider the decision but will also consider Powell’s comments at the press conference following the announcement and the updated economic projections to be released.

By then, the Fed will have the November Consumer Price Index news on Tuesday. Estimates predict a continued downward trend in price increases, with a monthly increase of 0.3% from October’s 0.4% and an annual rate of 7.3% after the month’s 7.7% previous. Although this is considerably above the Fed’s long-term target of a 2% annual average, it will be the direction and the trend that will matter most.

There has been notable improvement of late in several key areas that have contributed to the fastest price growth since the 1980s. The price of oil, which is currently trading internationally at $75 a barrel, is well below its spring level of around $125. Apartment rents fell more than 2% in November, while used cars, electronics and other items also fell from prices a year earlier. Wage growth, an important part of the overall inflation picture, is slowing.

Still, ING’s chief international economist, James Knightley, sees the Fed continuing to raise rates until 2023 before shifting gears and the economy slows further.

“We expect a final 50 basis point hike in February, bringing the federal funds cap to 5%,” he said on Friday. “But like the market, we believe a recession will ease price pressures and the composition of the US inflation basket, which is heavily weighted to housing and vehicles, will facilitate a much faster drop in inflation numbers. annual than elsewhere.

“Also remember that the Fed has a dual mandate that includes employment momentum,” Knightley added. “This gives the Fed greater flexibility compared to other central banks to respond with stimulus and we believe it will do so starting in the third quarter of 2023.”

Meanwhile, consumers continue to spend, tapping into savings accumulated during the pandemic and using their credit cards. The Census Bureau releases its November retail sales report on Thursday. Economists are forecasting a decline from October’s 1.3% increase, although some are predicting a flat to slightly positive number.

“We’ll be looking to see if any cracks form in the bedrock of consumer stamina,” Sam Bullard, managing director and senior economist at Wells Fargo Corporate & Investment Banking, wrote on Sunday.

“The debt burden continues to rise, and while household balance sheets are still in better shape than they were before the Great Recession, the low personal savings rate means consumers will eventually run into to a wall in their overall spending habits,” he added. “We expect the resilience to continue through the holiday season; however, we expect retail sales to have increased by only 0.1% during the month of November. »

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