This week, the markets will be focusing on the Federal Reserve’s policy meeting, scheduled to take place on Wednesday. While it is widely anticipated that the policymakers will stay put, investors will zoom in on the Federal Open Market Committee (FOMC) members’ rhetoric and interest rate outlook. Importantly, December’s FOMC meeting will be accompanied by the release of the Fed’s quarterly economic projections summary, known as the “Dot Plot”: a chart that summarizes the central bank’s benchmark federal funds interest rate outlook for short, medium, and long term.
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At the moment, markets appear virtually certain that the central bank will soon pivot to an easier monetary policy. Previously, Fed officials acknowledged that inflation is easing, lending even more ground to the markets’ expectations of rate cuts beginning in the first half of 2024. While most analysts are mentioning two rate cuts next year, the markets now price in a greater-than-50% chance of the Fed’s rates falling by at least 1.25% by the end of 2024. That is one of the reasons to watch for clues in the Dot Plot: if the projections conflict with the market’s optimistic outlook, stocks may encounter a fresh bout of volatility.
Meanwhile, stock markets logged in their sixth straight week of gains, encouraged by the latest jobs data. The report was not hot enough to dissipate investor optimism about the imminent Fed pivot, but robust enough to support the widely held belief that the economy is heading to a “soft landing,” i.e., low but still positive growth, and softening inflation. This Goldilocks scenario fueled the market rally last month, and, barring any sudden changes in the data or other negative surprises, is expected to carry the markets higher into 2024.
Here are four economic events that could affect your portfolio this week. For a full listing of all upcoming economic events, check out the TipRanks Economic Calendar.
» November’s CPI and CPI ex. Food and Energy (Core CPI) – Tuesday, 12/12 – These reports measure changes in the retail prices of goods and services in corresponding data subsets. The CPI report is one of the two key inflation measures (the second one is the Personal Consumption Expenditures or PCE). Policymakers, businesses, and consumers closely watch the CPI report, as it reflects the price trends in the economy, shapes consumer spending and business outlooks, and directly affects the Federal Reserve’s policy rate decisions.
» November’s Producer Price Index (PPI) – Wednesday, 12/13 – This report, released by the Bureau of Labor Statistics, reflects input prices for producers and manufacturers. Since PPI measures the costs of producing consumer goods, which directly affects retail pricing, PPI is seen as a good pre-indicator of inflationary pressures, i.e., a leading indicator for the next month’s CPI. Thus, the PPI serves the policymakers in shaping their overall inflation outlook.
» November’s Retail Sales – Thursday, 12/14 – This report, released by the U.S. Census Bureau, provides information on how much money consumers are spending on various durable and non-durable goods. Since the report tracks the amount of spending in an economy, it helps to gauge the economy’s health and consumer spending habits, as well as the level of the buy-side inflation pressures.
» December’s S&P Global Manufacturing PMI and Services PMI (preliminary readings) – Friday, 12/15 – The Manufacturing PMI captures business conditions in the manufacturing sector, which contributes a significant part of total GDP; thus, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the U.S. Services PMI captures business conditions in the services sector; it is a crucial indicator since the services sector is responsible for almost 80% of total U.S. GDP. PMI indices are leading economic indicators used by economists and analysts to gain timely insights into changing economic conditions since the direction and rate of change in the PMIs usually precede changes in the overall economy.
