Mid-Week Market Minute 12.14.22

Market Updates

Encouraging Inflation Data Ahead of Fed Announcement

Stocks and bonds were markedly higher mid-week following encouraging data on the inflation front. All told, the S&P 500 was more than 2% higher heading into Wednesday, while international developed stocks were higher by about 1%. In bonds, the Bloomberg U.S. Aggregate gained about 0.70% in total return as interest rates fell sharply.

On Tuesday, the Consumer Price Index report for November showed headline inflation rose at a modest clip of 0.1% in November, well below consensus expectations for an increase of 0.3%. Excluding the more volatile food and energy components, core CPI rose 0.2% for the month and 6% on an annual basis, compared to estimates of 0.3% and 6.1% respectively. After peaking around 9% in June, inflation has been on a slow but steady decline.

This comes ahead of the widely anticipated Federal Reserve announcement on Wednesday afternoon. The Fed has responded to higher inflation by hiking rates at each of the past six meetings so far this year. Fed Chairman Jerome Powell recently said a crucial component in determining the future path of rate hikes will be services inflation excluding shelter costs. That gauge was little changed in November but is still up nearly 7.3% from a year ago. We expect the central bank to announce a 0.50% (50 basis point) rate hike, which would leave the upper end of the Federal Funds rate at 4.50% heading into year-end.

Source: GSAM, CNBC, JPMorgan

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