Economic Preview for December 1-5: Yardeni QuickTakes

With the chances of a December Fed rate cut standing at 86% at the beginning of the week, both the Federal Reserve and investors are eager for more concrete economic data. The upcoming Federal Open Market Committee (FOMC) meeting in ten days is highly anticipated, with discussions ongoing about whether to wait until late January for another rate cut or to announce a cut on December 10.

Currently, the doves seem to have the upper hand. With two rate cuts in 2025 and a total of 150 basis points slashed since September 2024, it is predicted that the Fed, under Powell’s leadership, will reduce borrowing costs by another 25 basis points. However, with inflation hovering around 3% year-on-year, there is hesitancy about adding more liquidity in the January meeting.

To compensate for the lack of data delays due to the government shutdown, the personal consumption expenditures deflator (PCED) for September could provide some insights. Retailers’ earnings reports, such as Dollar Tree and Kroger, might also shed light on spending trends following Black Friday and Cyber Monday.

Several key releases this week could sway the odds of a December rate cut. First, inflation indicators will provide critical data. Although the Fed would prefer November stats, the September data on consumption and PCED inflation will suffice. Additionally, import and export prices data could offer clues about inflation trends.

The ISM manufacturing PMI survey, set to release on Monday, and the non-manufacturing survey on Wednesday will also be closely watched. Employment dynamics, highlighted by weekly unemployment insurance applications and ADP’s employment report, will offer insights into the labor market’s strength. Mortgage demand data from the Mortgage Bankers Association will shed light on consumer confidence and economic stability.

The recent increase in mortgage applications hints at a robust economy, reminding Fed officials that the year might end on a positive note. The data from each of these releases will play a crucial role in shaping the outcome of the December Fed rate decision.

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