The week ahead is packed with significant data releases, culminating in the Federal Reserve’s highly anticipated interest rate decision. While no immediate policy shift is expected, Chairman Jerome Powell and the Fed will face the challenge of reflecting current economic strength and stubborn inflation in their updated Summary of Economic Projections (SEP). At the same time, disinflationary pressures could soon emerge from a slowing labor market and rising productivity.
All eyes will turn to the Fed on Wednesday, where the new SEP will include updated forecasts for growth, unemployment and inflation. Early indications suggest faster Q4 GDP growth, lower unemployment, and higher core PCE inflation. These revisions highlight the Fed’s tightrope walk between containing inflation and supporting growth.
On the inflation front, the PCE price index will take center stage. Inflation is expected to accelerate in November due to rising food and energy prices, though easing housing inflation should mitigate some of the pressure. October’s core PCE prices were up 2.8% year-over-year, still above the Fed’s 2% target, and accelerating from the stable 2.7% increase observed in prior months. This trend underscores the challenge of achieving sustainable disinflation, particularly as energy prices rebound.
Looking ahead, the December rate cut could mark the end of this cycle’s easing for a while. Seasonal adjustments often create noise in January and February economic reports, complicating data interpretation. Additionally, the arrival of a new administration in Washington could delay further policy changes as the Fed assesses the growth implications of any legislative shifts.
With rate cuts slowing, Treasury yields and mortgage rates may edge higher to close out the year, reflecting market expectations of a more patient Fed.
Elsewhere in the economy:
Retail sales and housing starts will provide additional clues about economic momentum heading into 2025. November retail sales are expected to post a stronger gain than the previous month, reflecting resilient consumer spending despite higher borrowing costs. Meanwhile, housing starts are projected to remain subdued, reflecting a large decline in multi-family housing starts caused in large part to a 50-year high number of buildings already under construction or recently completed.
