The Federal Open Market Committee’s (FOMC) last policy-setting meeting of this year and November’s retail sales data will take centerstage this week.
After cutting interest rates three consecutive times this year, economists broadly expect the Fed to hold rates steady at its final meeting this year. The FOMC will release an updated dot plot, policy statement, economic projections and Fed Chair Jay Powell will deliver a press conference.
Credit Suisse economist James Sweeney expects the dot plot will be the most interesting piece of new information at the conclusion of the two-day meeting. “We expect the median dot to show an unchanged rate projection of 1.625% in 2020, followed by one 25bps hike each in 2021 and 2022. This is more hawkish than rates market pricing of some easing. There is broad consensus on the FOMC around the near-term policy trajectory, so we expect little dispersion in dots for 2019-20. Risks are for higher medians in 2021 and 2022, as some Fed officials who were opposed to the rate cuts in the first place may choose to have rates return to the longer-run neutral more quickly. We expect the long-run median to stay unchanged at 2.5%,” Sweeney wrote in a note to clients Thursday.
He also noted that he expects no change to the committee’s economic projections regarding GDP and unemployment, and Powell is likely to reiterate that policy is in a wait-and-see mode for the time being. “Fed policy is likely to remain unchanged through the end of 2020. Downside risks remain, but a healthy labor market and strong consumer finances should prevent a more worrisome downturn in growth. Meanwhile, inflation is likely to rise towards the Fed’s 2.0% target by early next year, but we do not expect a sharp move higher,” Sweeney said.
Powell’s recent press conferences have been tightly scripted performances, according to J.P. Morgan. “We expect that will be the case next week. Powell will likely continue to characterize monetary policy as well-calibrated and “in a good place.” Any discussion of balance sheet or bank liquidity policy will likely be reserved for the opening statement of the press conference. In general, we expect that Powell will express a ‘whatever it takes’ attitude toward addressing year-end funding concerns.”
Meanwhile, investors will get a pulse on the health of the U.S. consumer Friday when the Census Bureau releases the retail sales data for November.
November’s data is crucial because it captures a substantial part of the holiday shopping season. Though retail sales are expected to have been solid during the month, some economists explained that there could be some pressure resulting from the later-than-normal Thanksgiving holiday. “We expect a modest 0.1% m-o-m increase in core (“control”) retail sales in November,” Nomura wrote in a note Friday. “While consumer fundamentals remain solid, we expect transitory downward pressure due to a later-than-usual start to the holiday shopping season. A later Thanksgiving holiday this year resulted in Black Friday taking place six days later than in 2018.”
Nevertheless, the firm explained that any softness in November’s retail sales data means a sharp rebound in December. Economist polled by Bloomberg expect core retail sales rose 0.4% in November, up from 0.1% in October.
While the earnings calendar remains light for the week, some of the big names reporting include Toll Brothers, Chewy, Lululemon, Adobe, Broadcom, Oracle and Costco.
Tuesday: NFIB Small Business Optimism, November (103.0 expected, 102.4 in October); Nonfarm Productivity, Q3 final (-0.1% expected, -0.3% prior)
Wednesday: MBA Mortgage Applications, week ended Dec. 6 (-9.2% prior); CPI month-on-month, November (0.2% expected, 0.4% in October); CPI excluding Food and Energy month-on-month, November (0.2% expected, 0.2% in October); CPI year-on-year, November (2.0% expected, 1.8% in October)
Thursday: PPI Final Demand month-on-month, November (0.2% expected, 0.4% in October); PPI excluding Food and Energy month-on-month, November (0.1% expected, 0.3% in October); PPI Final Demand year-on-year, November (1.3% expected, 1.1% in October); PPI excluding Food and Energy year-on-year, November (1.7% expected, 1.6% in October); Initial Jobless Claims, week ended Dec. 7 (214,000 expected, 203,000 prior); Continuing Claims, week ended Nov. 30 (1.678 million expected, 1.693 million prior); Bloomberg Consumer Comfort, week ended Dec. 8 (61.7 prior)
Friday: Import Price Index month-on-month, November (0.2% expected, -0.5% in October); Retail Sales Advance month-on-month, November (0.4% expected, 0.3% in October); Retail Sales excluding Auto month-on-month, November (0.4% expected, 0.2% in October); Retail Sales excluding Auto and Gas, November (0.4% expected, 0.1% in October)