What will the Federal Reserve do at its meeting in December? Analysts can speculate all they want, but Fed officials say they will be using hard economic data to make their next decision.
That means key housing, labor, and inflation reports will likely have outsized effects on the market as investors speculate about what they might mean for the future of interest rates.
What's happening: No one can move markets like Federal Reserve Chair Jerome Powell — with just a few words on Wednesday he crushed investors' hopes of an interest rate pivot and sent stocks plunging.
"We have a ways to go," said Powell of the Fed's current hiking regime meant to fight persistent inflation. "It's very premature, in my view, to think about or be talking about pausing."
But Powell did add an important caveat. The Fed could start to slow the pace of those painful hikes as soon as December. "Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation," Powell said on Wednesday.
So what will the Fed be looking at between today and its next policy decision on December 14?
The labor market: The Fed's biggest worry is the super-tight US labor market, and Friday's jobs report isn't likely to soothe any nerves.
The government report is expected to show the economy added another 200,000 positions in October — down from last month, but still a very solid number as demand for employment continues to outpace the supply of labor.
That means more inflation. Businesses have to pay higher wages to attract employees and are able to charge more for their goods and services. The Fed will be looking closely at hourly wage growth in the report. In September, wages rose by 5% from a year ago.
There is a possible upside. Another jobs report in December is expected ahead of the Fed meeting. If both reports show a downward trajectory in employment, that could be enough to placate Fed officials, even if the unemployment rate remains historically low.
Inflation data: Expect new data from two major indexes that measure the pace of inflation ahead of the next Federal Reserve meeting.
The Consumer Price Index (CPI) for October, which tracks changes in the prices of a fixed set of goods and services, is out on November 10.
Core CPI prices, which exclude oil and food, rose 0.6% in September month-over-month, matching August's pace and coming in well above expectations of a 0.4% increase, not a great sign for the Fed. And analysts expect to see another large 0.5% increase in October.
The Fed will also get to see October data from its favored measure of inflation, Personal Consumption Expenditures (PCE), on December 1.
PCE reflects changes in the prices of goods and services purchased by consumers in the United States. The Fed believes the measure is more accurate than CPI because it accounts for a wider range of purchases from a broader range of buyers.
Core PCE climbed by 5.1% on an annual basis in September, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.
Housing: The housing market has been deeply impacted by the Fed's efforts to fight inflation, and is one of the first areas of the economy to show signs of cooling.
The 30-year fixed-rate mortgage averaged 6.95% last week, up from 3.09% just a year ago, and elevated borrowing costs are leading to a decline in demand.
"The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low," said Powell on Wednesday. "We do understand that that's really where a very big effect of our policies is."
October's new and existing home sales numbers, due on November 18 and 23, will show the continued impact of that policy ahead of the next meeting.
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