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What will the Federal Reserve do at its December meeting? Analysts can speculate all they want, but Fed officials say they will use hard economic data to make their next decision.
That means major reports on housing, labor and inflation are likely to have disproportionate effects on the market as investors speculate about what they could mean for the future of interest rates.
What is going on: No one can move markets like Federal Reserve Chairman Jerome Powell — with just a few words on Wednesday, he crushed investors’ hopes for a rate change and sent stocks plummeting. “We still have a long way to go,” Powell said of the Fed’s current rate-raising regime, designed to combat ongoing inflation. “It’s very premature in my opinion to think or talk about pausing.”
But Powell did add an important caveat. the Fed could slow the pace of those painful walks as early as December. “Our decisions will depend on the aggregate of incoming data and its implications for the outlook for economic activity and inflation,” Powell said Wednesday.
So what will the Fed be looking at between today and his? next policy decision on December 14?
The labor market: The Fed’s main concern is the super-tight job market in the US, and Friday’s jobs report is unlikely to calm nerves.
The government report is expected to show the economy added another 200,000 jobs in October — a drop from last month, but still a very solid number, as job demand continues to outpace labor supply.
That means more inflation. Companies have to pay higher wages to attract workers and can charge more for their goods and services. The Fed will closely monitor hourly wage growth in the report. In September, wages rose by 5% compared to a year ago.
There’s a potential upside: Ahead of the Fed meeting, another jobs report is expected in December. If both reports show a downward trend in employment, that could be enough to calm Fed officials even as the unemployment rate remains at record lows.
Inflation data: Expect new data from two major indices measuring the pace of inflation ahead of the Federal Reserve’s next meeting.
The consumer price index (CPI) for October, which tracks changes in the prices of a fixed range of goods and services, will be released on November 10.
Core CPI prices, excluding oil and food, rose 0.6% month-on-month in September, in line with August’s pace and well above expectations of a 0.4% increase, not a great sign for the Fed. And analysts expect another big 0.5% increase in October.
On December 1, the Fed will also see October data from its preferred inflation measure, Personal Consumption Expenditures (PCE).
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 the CPI because it takes into account a wider range of purchases from a wider range of buyers.
Core PCE rose 5.1% year-over-year in September, up from 4.9% in August, but below the consensus estimate of 5.2%, according to Refinitiv.
Housing: The housing market has been hard hit by the Fed’s efforts to fight inflation and is one of the first sectors of the economy to show signs of cooling.
The 30-year fixed-rate mortgage averaged 6.95% last week, up from 3.09% a year ago, and higher borrowing costs are driving demand down.
“The housing market was very overheated in the few years after the pandemic as demand increased and rates were low,” Powell said Wednesday. “We understand that there is a really big effect of our policy there.”
October’s new and existing sales figures, expected November 18-23, will show the continued impact of that policy ahead of the next meeting.
The US economy is still strong in the face of rising interest rates, but on the other hand, it is softening much faster.
The UK will face difficult economic times and raise interest rates well into next year, officials warned this week.
The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the largest increase in 33 years, in a bid to combat rising inflation.
But the bank also issued a stern warning. It said economic output is already shrinking and it expects a recession will continue into the first half of 2024 “as high energy prices and materially tighter financial conditions weigh on spending.”
A two-year recession would last longer than the one that followed the 2008 global financial crisis, although the Bank of England said any declines in GDP heading into 2024 will likely be relatively small.
The central bank also believes that inflation will not decline until next year. That will require more rate hikes in the coming months, policymakers warned.
Elon Musk has been busy at Twitter HQ. Aside from tweeting and removing a conspiracy theory, he’s talked about making some major changes to his $44 billion acquisition. This is what has happened so far:
Layoffs begin: Elon Musk began firing Twitter employees Friday morning, according to a memo sent to staff. The email sent Thursday evening informed employees that they will receive a notification informing them of their employment status by noon ET on Friday.
The email added that “to ensure the security” of employees and Twitter systems, the company’s offices “will be temporarily closed and all access to badges will be suspended.”
Before the acquisition of Musk, Twitter had about 7,500 employees.
Several Twitter employees have already filed class action lawsuits alleging the layoffs violate the federal employee adjustment and retraining law.
The WARN Act requires any company with more than 100 employees to provide 60 days’ written notice if it intends to cut 50 jobs or more on a “single site of employment.”
Consolidating Power: In less than a week since Musk took over Twitter, the company’s C-suite appears to have been almost completely cleaned up, through a mix of layoffs and layoffs.
Twitter’s board of directors was also dissolved last week, according to a securities filing.
The company filing states that all previous members of Twitter’s board of directors, including recently deposed CEO Parag Agrawal and chairman Bret Taylor, will no longer be directors “in accordance with the terms of the merger agreement.” That makes Musk, according to the filing, “the sole director of Twitter”.
Cashing Blue Checks Checks: Musk said Tuesday that he planned to charge $8 a month for Twitter’s subscription service called “Twitter Blue,” promising to make everyone pay to receive a coveted blue check to verify their account. . That’s a straight cut from his original plan to charge users $19.99 per month to get or keep a verified account.
In a tweet, the world’s richest man used an expletive to describe his assessment of “Twitter’s current lords & peasants system for who has or does not have a blue tick.” He added: “Power to the people! Blue for $8/month.”
Advertisers click pause: Elon Musk wrote an open letter to advertisers just hours before confirming his takeover of Twitter, explaining that he didn’t want the platform to become a “free-for-all hellscape.” But that effort to reassure the ad industry, which makes up the vast majority of Twitter’s business, doesn’t seem to be working.
General Mills (GIS), Mondelez International (MDLZ), Pfizer (PFE) and Audi (AUDVF) have reportedly joined a growing list of companies that are pausing their Twitter ads following the Musk acquisition.