Today’s PCE release indicated monthly core PCE increasing 0.2%, which puts the 3-month annualized average at 2.4%. That’s getting closer to the Fed’s target of 2.0% (remember this average was over 7.0% in mid-2022). The 10-year had another big week of moves. Starting at about 4.50% on Monday, rallying to 4.25% yesterday and up to 4.32% this morning.
Hawkish and influential Fed Governor Waller moved markets this week as he is “confident that policy is positioned to…get inflation back to 2%.” The “higher for longer” narrative that dominated the recent months has receded. Waller added he could imagine the Fed lowering rates after seeing continuing disinflation over the next 3 months. Watching the data (labor market, consumer strength), continuing jobless claims hit a 2-year high, and big Black Friday retail sales were aided by a big increase in “buy now pay later” purchase plans. Inside the PCE data, goods were down 0.3%, and services were up 0.2%.
Fed Futures markets indicate no rate increase at next month’s meeting. That will mark 3 straight pauses and (hopefully) mark this as the “pause before the pivot.” July was the last rate increase and the last few tightening cycles have averaged about 9 months between the last increase and the first cut. Could the pivot come at the May 2024 meeting? 150 days from now, but who’s counting?…
