Markets are little changed as Fed decision looms

Dow rose 118, but decliners modestly ahead of advancers & NAZ gained 38.  The MLP index fell 2+ to the 245s & the REIT index was off 1 to the 373s.  Junk bond funds crawled higher & Treasuries had limited buying, bringing lower yields (more below).  Oil dropped again, down 2+ to 69, & gold recovered 2 to 1996.

AMJ (Alerian MLP Index tracking fund)

Inflation continued to moderate in Nov as a steep drop in gasoline prices helped to offset increases in the cost of housing, medical care & transportation.  The Labor Dept said that the consumer price index, a broad measure of the price of everyday goods including gasoline, groceries & rent, rose 0.1% in Nov from the previous month, slightly more than expected.  Prices climbed 3.1% from the same time last year, which is in line with estimates & down from the 3.2% recorded in Oct.  Other parts of the report also pointed to cooling price pressures within the economy.  Core prices, which exclude the more volatile measurements of food & energy, climbed 0.3%, or 4% annually.  Both of those figures are in line with estimates.  Still, the report indicates that while inflation has fallen considerably from a peak of 9.1%, it remains well above the Federal Reserve's 2% target.  High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent.  The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.  Consumers continued to see some reprieve in Nov.  The price of gasoline plunged 5% last month & is down 8.9% from the same time last year.  The cost of airline tickets also dropped 0.4% over the month & is down 12.1% compared with the same time one year ago.  Other price gains proved more persistent in Nov.  Shelter costs, which were the largest contributor to core inflation last month, jumped 0.4% on a monthly basis remain up 6.5% over the past year.  Food prices, a visceral reminder of inflation for many Americans, also remained uncomfortably high in Nov.  Grocery costs rose 0.1% last month, down from 0.3% in Oct, & are up 1.7% compared with the same time last year.

Inflation's grip on Americans intensifies as key measure rises more than expected in November

Rate cuts, an increased chance of a soft landing & lower inflation, the outlook for next year is looking up in the CNBC Fed Survey, to a point.  Respondents to the Survey see the Federal Reserve beginning rate cuts next year, though not as aggressively or as quickly as markets have priced in.  Jun is the first month for which more than ½ of respondents have a reduction built in, rising to 69% by Jul.  Overall, the average respondent forecasts about 85 basis points of cuts next year, roughly one 25 basis point trim a qtr, but not as much as the 120 basis points built into futures markets.  Respondents boosted the probability of a soft landing to 47%, up 5 points from the Oct survey.  They lowered the probability of a recession in the next year by 8 points to 41%, the lowest since the spring of 2022.  Still, the average respondent sees the unemployment rate rising to 4.5% next year & GDP coming in just below 1%, about ½ of potential, showing that all is not rosy with the forecast & that an economic slowdown remains the baseline forecast for the group.  Inflation is forecast to decline on average to 2.7% by the end of next year, down from an expected year-end level of 3.2% for the consumer price index.  About a 3rd of respondents forecast the Fed will hit its 2% inflation target next year, 37% say it will happen in 2025 & 28% say it will happen after 2025 or never.

Fed to start cutting rates midyear in 2024 with high chance of soft landing, CNBC Fed survey finds

The 10-year Treasury yield was little changed as investors parsed the latest inflation numbers with the Federal Reserve's last interest rate decision of the year looming.  The yield on the 10-year Treasury was lower by less than 1 basis point at 4.23%, trading near the key 4.2% level & the 2-year Treasury yield inched around 1 basis point lower lower to 4.72%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The moves follow a largely tame inflation report.  That comes ahead of the Federal Reserve's final monetary policy meeting of 2023, which begins today.  It will conclude with a new interest rate decision & guidance on the outlook for the economy & monetary policy tomorrow.  Investors are widely expecting the Fed to leave interest rates unchanged & are hoping for clues about when policymakers may start considering rate cuts & how they expect the economy to fare as rates remain elevated.  This includes whether a recession is expected next year or if the Fed will be able to achieve a soft landing.

Treasury yields are flat Tuesday as Fed rate decision looms

While inflation is far below its recent highs, all is not well.  The price of oil in the futures market (WTI), a key part of inflation, is below where it was 2 years ago.  Falling gas prices can not be expected to continue their decline.  In addition, prices are at elevated levels which still pinches consumer thoughts about spending.  The report after the Fed meeting tomorrow will give a sense of what the Fed plans to do with interest rates.

Dow Jones Industrials