Two main things are on the mind of markets and economists this week.
Will Federal Reserve officials throw cold water on market expectations for a March interest rate cut in their last speeches before going into a media blackout period on Friday before their next policy meeting? After this week’s U.S. inflation data, markets are pricing in almost an 80% chance of a rate cut even though some Fed officials have been pushing back on that expectation.
Economists are also eager to get the latest reading on consumer spending. The consumer has been resilient over the past year despite concerns over the increased debt burden. A recent study by the Philadelphia Fed found that credit card delinquency rates surpassed pre-pandemic levels in the third quarter. The data will shed light on recent holiday season.
Fed Gov. Waller speech
Tuesday, 11:00 a.m. Eastern
In late November, Fed Gov. Christopher Waller opened the door to a spring interest rate cut. He said that if inflation continues to cool “for several more months — I don’t know how long that might be — three months, four months, five months — that we feel confident that inflation is really down and, on its way, you could then start lowering the policy rate just because inflation is lower.” Stocks rallied and 10-year Treasury yields
BX:TMUBMUSD10Y
fell, as the market eyed a strong chance of rate cuts beginning in March.
The markets will be listening closely to Waller’s remarks. There is some concern Waller try to close the door on a March cut. Since the last Fed meeting, most officials have been noncommittal on the timing of potential cuts, with a modest pushback against a rate reduction in March, said Jeremy Schwartz, economist at Nomura. On Thursday, Cleveland Fed President Loretta Mester said March was “probably too early” for a rate cut.
Fed officials will stop speaking publicly about interest-rate policy at the end of the week, ahead of their Jan. 30-31 interest-rate committee meeting.
December retail sales
Wednesday, 8:30 a.m. Eastern
Despite worries about the health of the consumer, it looks like the Grinch did not stop Christmas in 2023. Economists are forecasting a solid 0.4% gain in retail sales in December after a 0.3% gain in the prior month. A gain in line with expectations would signal continued momentum in the economy. A weaker number might aid the case for a Federal Reserve rate cut in March.
Fed’s Beige Book report on current economy
Wednesday, 2:00 p.m. Eastern
The Beige Book is a collection of anecdotal reports from business contacts of the 12 Fed district banks.
Fed officials have been saying recently that these first-hand accounts have been valuable given the large uncertainty about where the economy is headed this year.
The most recent report, in November, downgraded its view on the economy, saying that “economic activity slowed, with six districts reporting slight declines in economic activity.
The drop in long-term interest rates since November could boost business sentiment in December.
