The highlight of the upcoming week will be the December 10th FOMC meeting. While the probability of a 25-bps Fed cut fell to ~30% at one juncture in the last week of November, it subsequently rebounded higher and now hovers ~90%. In public comments, various Fed members had expressed concern about inflationary pressures, but others subsequently expressed firm comfort with another cut. Economic data has been overall mixed but appears to have revealed enough of a weak tone for another “risk management” rate ease. With the government shutdown over, some delayed data has been released, however, much of it has been stale and many reports are still to be scheduled/released. This situation makes economic assessments and the Fed’s decision more difficult, and the ongoing tug-of-war between employment and inflation forces should spur lively debate within the Fed and likely some dissents on the official outcome. Note that a fresh Summary of Economic Projections, aka “dot plot”, will be released along with the rate decision and statement.

We are now experiencing a “higher for longer” phase in the interest-rate cycle, accompanied by an inversion in the short-to medium terms followed by a steepening (see following chart). The Fed is still in a restrictive posture, but market expectations indicate a near-term easing, however, uncertainty surrounding the potential of future heightened growth leading to elevated inflation is causing steepening at the longer-end of the curve…

Kristina Hooper discusses her outlook for the economy and markets for the remainder of 2023 and beyond. From recent challenges in the banking industry to inflation to earnings, 2023 has already faced a variety of uncertainties…