US Markets
Monday, January 22nd, 2024 7:30 pm EDT
Key Points
- Focus on Economic Reports: Investors are closely monitoring two key economic reports to understand the Federal Reserve’s stance on potential interest rate cuts. The reports, the initial gross domestic product (GDP) estimate for Q4 2023 and the December reading on the personal consumption expenditures price index (PCE), are crucial in determining the central bank’s future policy direction.
- Economic Growth and Inflation Numbers: The GDP estimate for Q4 2023 is expected to show a growth rate of 1.7%, the slowest since Q2 2022. The PCE index, a favorite inflation gauge for the Fed, is anticipated to reveal 0.2% growth for the month and 3% for the full year in core PCE prices, excluding volatile components. The inflation data is particularly significant as it influences the Fed’s rate path and its goal to reach 2% inflation.
- Shift in Market Sentiment: Recent data, including stronger-than-expected consumer spending and lower jobless claims, has led to a shift in market sentiment regarding the likelihood of a rate cut. Odds for a rate reduction at the March meeting fell to 47.2% from 81% a week ago. Several Fed officials, including Governor Christopher Waller and New York Fed President John Williams, have indicated a reluctance to cut rates, contributing to the change in sentiment. The housing inflation, as measured by the shelter component of the Consumer Price Index, has risen, but other measures, like the New Tenant Rent Index, suggest a different story. The timing of rate cuts and their impact on market outcomes remain uncertain, with various factors such as a stock market rally, geopolitical tensions, and economic growth influencing the outlook.
Investors are closely monitoring economic reports this week to gauge the Federal Reserve’s stance on potential interest rate cuts, a crucial factor influencing the economy and stock markets. The Commerce Department is set to release the initial gross domestic product (GDP) estimate for Q4 2023 on Thursday, with expectations of a 1.7% growth rate, the slowest since Q2 2022. Following this, the department will release the December reading on the personal consumption expenditures price index, a key inflation gauge for the Fed. Analysts anticipate 0.2% growth for the month and 3% for the full year in core PCE prices, excluding volatile components. Chicago Fed President Austan Goolsbee emphasizes the importance of these data points in determining the Fed’s rate path, particularly in achieving the 2% inflation target. Market sentiment has shifted, with reduced expectations for a rate cut at the Jan 30-31 meeting and a drop in odds for a March cut from 81% to 47.2%. Positive economic data, including stronger-than-expected consumer spending and lower jobless claims, contributed to this change. Goolsbee and other Fed officials have signaled a cautious approach, emphasizing the need for clear evidence of inflation progress before considering rate cuts. The focus on housing inflation and various economic and geopolitical developments adds complexity to the outlook, influencing market outcomes and discussions about potential rate hikes rather than cuts.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/21/two-important-events-this-week-could-determine-the-future-of-fed-rate-policy.html
