{"id":3171,"date":"2023-12-13T18:40:53","date_gmt":"2023-12-13T18:40:53","guid":{"rendered":"https:\/\/economicherald.net\/?p=3171"},"modified":"2023-12-13T18:40:53","modified_gmt":"2023-12-13T18:40:53","slug":"us-inflation-is-slowly-heading-toward-the-feds-2pc-target-but-not-quietly","status":"publish","type":"post","link":"https:\/\/economicherald.net\/?p=3171","title":{"rendered":"US Inflation is slowly heading toward the Fed\u2019s 2pc target, but not quietly"},"content":{"rendered":"

US Consumer Price (CPI) data for November dropped late in the New York session, with inflation pretty much unchanged last month.<\/p>\n

Or, in the words of CBA\u2019s Harry Ottley, only marginally stronger-than-expected.<\/p>\n

\u201cThe main takeaway is we\u2019re on that path towards returning to the Fed\u2019s 2% target,\u201d said Alan Detmeister, an economist at UBS.<\/p>\n

\u201cBut we\u2019re getting there slowly.\u201d
\n\u00a0<\/p>\n

Down but not out<\/h2>\n

US inflation \u2013 stripping out food and energy prices \u2013 eased to 4% year-on-year in November.<\/p>\n

Wall Street closed higher and US bond yields tripped lower Tuesday night as happy buyers of the mega-cap stocks could almost taste the rate cuts \u2013 the US Federal Reserve concluded its two-day policy meet overnight (New York time) and comes out with a final 2023 decision on interest rates.<\/p>\n

The S&P 500 ended up +0.45%, the Dow Jones, +0.5% and the Nasdaq Composite added +0.7%. New intraday 12-month highs all round.<\/p>\n

The Fed is broadly expected to keep its key rate unchanged to complete what would be a hat-trick of pauses.<\/p>\n

According to the CME FedWatch Tool, there\u2019s now instead a circa 80% chance of a rate cut in May.
\n\u00a0<\/p>\n

A sticky \u2018super core\u2019<\/h2>\n

US headline inflation lifted by 0.1% Month on Month (MoM) while the annual rate eased to 3.1% from 3.2%, after a month of steep oil price declines.<\/p>\n

Core inflation rose by 0.3% MoM, which saw the annual rate remain unchanged at 4%.<\/p>\n

The inevitable Satan in the small print \u2013 underlying price pressures, the everyday, rents, restaurant meals, car insurance and many other services \u2014 looks like it\u2019s staying stubbornly high ahead of Christmas.<\/p>\n

Westpac economists said the \u2018super core\u2019 CPI (excluding food, energy and housing) was seen as sticky and countered the prior squeeze in bonds.<\/p>\n

But while the majority of attending economists think rising prices will splutter out in the coming months, UBS expects\u00a0 wild swings ahead for markets next year.<\/p>\n

It could be a wild ride, but inflation \u2013 according to UBS economists \u2013 looks entirely capable of falling to within the US Fed\u2019s 2% target band by the end of next year.
\n\u00a0<\/p>\n

A reserved US Fed<\/h2>\n

Attention now turns to tomorrow\u2019s Fed meeting, where the Board is expected to keep the Federal Funds target rate unchanged at 5.25%-5.50%.<\/p>\n

CBA notes that with core US inflation still sitting at 4.0%\/yr there\u2019s still work to be done and Tuesday night saw US traders pared some rate cut bets, albeit marginally.<\/p>\n

\u201cTomorrow\u2019s FOMC policy meeting will likely reinforce that the Fed has not yet declared victory on inflation and communication will push back on possible cuts. US bond yields jumped initially after the CPI print but then pared gains and equities advanced.\u201d<\/p>\n

Tony Sycamore at IG says with the decision more or less baked in, interest will focus on whether the statement includes a tightening bias as elucidated in last month\u2019s statement:<\/p>\n

In determining the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time.<\/em><\/p>\n

\u201cAs a result, there hasn\u2019t been a change to the broader market view that rate hikes are finished and cuts are coming next year, with the first still pencilled in for May 2024,\u201d Tony adds.
\n\u00a0<\/p>\n

Bullishly positioned for what comes next<\/strong><\/h2>\n

AS US stocks keep surging on into Christmas \u2013 the S&P500 index is up around +12% \u2013 UBS says investors should be \u201cbullishly positioned,\u201d but also braced for the worst.<\/p>\n

\u201cThe large spread between current strength and expected weakness presents a dilemma for investors,\u201d UBS wrote in a Monday note.<\/p>\n

\u201cWe recommend remaining constructively positioned until the data deteriorates, with a focus on (1) labor market conditions, (2) credit performance, and (3) profit projections.\u201d<\/p>\n

\u201cWith P\/Es 2-3 multiple points below their 2022 highs, and the backdrop strong, we see further upside over the near-term.\u201d <\/p>\n

\u201cThat said, we expect a double-digit drawdown some time in 2024.\u201d<\/p>\n

While stocks typically fall six to seven months before a recession, UBS says it could be anytime from now to the start of 2025.<\/p>\n

UBS has forecast the US S&P500 will end 2024 at 4,850, roughly +4% above Tuesday\u2019s close with the tech sector set to \u2018reaccelerate earnings growth next year and account for roughly 2% to 3% of S&P 500 profit growth.\u2019<\/p>\n

Meanwhile, Goldman Sachs has forecast the S&P 500 will end 2024 at 4,700\u00a0 and the BofA a bullish 5,000.<\/p>\n

We\u2019ll know more after the Fed reveal at around 5am today.<\/p>\n

<\/span><\/p>\n

The post US Inflation is slowly heading toward the Fed\u2019s 2pc target, but not quietly<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

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