The most prominent event for Wall Street this week is the FOMC meeting, while an SNB and ECB meeting and the UK election also feature. FOMC will be first, starting its 2-day meeting on Tuesday.
The FOMC is widely seen on hold even after the robust payroll data, with no shift in rate policy for the foreseeable future. Indeed, the data validated the pause and left policymakers in a state of Fed nirvana, at least for now.
Fed Chair Powell will likely reiterate that the economy and policy are in a “good place.” There is little risk of any downside “material changes” in the outlook anytime soon given the solid path for jobs growth. And GDP will likely continue to modestly outpace the official Fed estimates, just as a benign inflation trajectory caps risk of rate hikes from the Fed as well.
The CPI, meanwhile, will also be announced the same day as the FED decision, however, even though CPI is the nexus for the FOMC’s policy stance, it will not have direct bearing on the decision. It has been estimated at a 0.2% November headline CPI rise, with a 0.2% core price increase, following respective October readings of 0.4% and 0.2%. As-expected gains would result in a headline y/y increase of 2.0%, up from 1.8% last month. Core prices should set a 2.3% pace for a second consecutive month. These should translate to a smaller 1.6% y/y pace in the FOMC’s preferred metric, the core PCE chain price measure, for November and December, and likely a 1.8% y/y Q1 and Q2 pace, leaving little risk of an overshoot of the 2% inflation objective anytime soon.
Hence, the focus will be on the Fed’s quarterly forecast update (SEP) and Chair Powell’s press conference. Upward revisions are expected in the official Fed growth forecasts, alongside a trimming in the inflation estimates, following small boosts at the September meeting for its 2019 GDP forecasts, but limited changes in the forecasts for the jobless rate or inflation.
In the markets so far, US equities are mildly weaker giving some support to bonds, as profit taking after Friday’s rally in stocks and a number of risk events this week have limited further buying. Moreover, the December 15 deadline for additional US tariffs on China’s goods looms. The USA30 is -0.1% weaker and the USA500 has eased -0.1% lower while the USA100 has fallen -0.2% in pre-market action.
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