Happy Friday! House lawmakers are set to avoid a government shutdown â but that was unlikely going to impact investors anyway. For our purposes, the Fed remains the most important player for markets.
Ironically, though, the Fed seems to have no clue whatâs coming next.
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If anyone should know where inflationâs headed, itâs the Federal Reserve.Â
Yet this weekâs meeting underscored the opposite: Policymakers are less certain than ever and they donât exactly know how to prevent prices from roaring back.
In a contradictory move Wednesday, the Fed cut its benchmark rate 25 basis points into the 4.25% to 4.5% range, while acknowledging that inflation isnât falling.
At the same time, officials raised their outlook for a key inflation metric â core PCE â from 2.2% to 2.5%, and halved their estimate for 2025 rate cuts from four to two.Â
Fed Chair Jerome Powell has denied speculating over president-elect Donald Trumpâs policies, though some commentators have taken the updated projections as a tacit nod to the new administration.
Eric Wallerstein, chief markets strategist for Yardeni Research, told me that while he doesnât believe the Fed has made a policy error yet, its recent rate cuts may not have been necessary.
âIf core PCE inflation breaches 3.0% next year, which is quite possible, a lot more people will be asking the question you're asking now,â Wallerstein said.
In his view, the Fedâs rhetoric leading up to December cornered it into a cut, regardless of rising inflation.Â
November core PCE data releases Friday at 8:30 a.m. ET, and analysts see it rising slightly from 2.8% to 2.9% year-over-year.
As of Thursday evening, traders see a 91% probability that the Fed keeps rates unchanged in January, according to CME data. Thatâs up from 77% one week prior.Â
To Wallerstein, the Fed could easily be on pause for the next 12 months, barring any black swan events or dramatic deteriorations in economic growth.Â
Meanwhile, traders on the prediction platform Kalshi see 29% odds that the Fed actually raises rates in 2025, roughly double what bettors forecasted a week ago.
Remember, the latest move follows the Fedâs two previous adjustments lower, including a jumbo half-point cut in September that markets took as a decisive signal that the inflation fight was over.Â
To muddy the outlook further, one central banker, Beth Hammack of the Cleveland Fed, dissented from Wednesdayâs rate cut.
Whatâs more, the range of year-ahead projections suggests other policymakers may have preferred another option as well, which in turn raises the question as to who thinks what about inflation and unemployment.
That said, a majority of the FOMC was still swayed to cut nonetheless.
âThere are a number of doves on the committee who still believe the labor market is fragile, or their attempts to model the neutral rate suggest to them that monetary policy is too tight,â Wallerstein said. âThese academics would be better served publishing research from ivory towers than setting monetary policy for the United States.â
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Elsewhere:
đ The Dow snapped its losing streak. The benchmark index finished the day barely higher to end its worst stretch in 50 years. The Nasdaq and S&P 500 did not fare as well, with both indexes falling Thursday. (CNBC)
đ Nike stock soared overnight. The shoe giantâs new CEO Elliot Hill has pushed the company in the right direction, beating earnings expectations and posting a revenue of $12.35 billion. Shares rose more than 6% after the news. (Yahoo Finance)
đImmigrants dominate US population growth. New government estimates show that newcomers accounted for 84% of US growth in the year ended June 30, continuing a trend that emerged with the pandemic. A surge a both legal and illegal arrivals, falling birthrates, and an aging population all factor in to the 1% population growth seen during the year. (WSJ)
Rapid-fire:
FedEx stock climbed as much as 10% as it announced a restructuring plan that analysts say could unlock $20 billion in shareholder value (Reuters)
Natural-gas futures hit their highest point in two years, up 39% compared to last December (WSJ)
House lawmakers rejected a Trump-endorsed bill to avert a government shutdown (CNBC)
November home sales posted their biggest annual gain since 2021 (WSJ)
These 11 forecasters and economists led Wall Street this year with prescient calls on stock picks, interest rates, Nvidia, and more (Business Insider)
Lawmakers are scrambling to avoid a partial government shutdown (CNBC)
Bitcoin has climbed in four of the past 10 years in the period between mid-December and New Yearâs Eve (Barronâs)
Last thing:
Barchart @Barchart
BREAKING đ¨: Value Investors
S&P 500 Value Stocks have now declined for 14 consecutive trading days, the longest losing streak in history đ x.com/i/web/status/1âŚ