Macroeconomics: The Day Ahead for 14 December

The FOMC meeting is front and centre, as it kicks off a packed 24-hour run of major central bank meetings. That said, there is a hefty calendar of data to get through, as well as the last of the monthly Oil Market Reports from the IEA. Statistically, there are Japan’s Q4 Tankan (mixed, with Services outlook dropping quite sharply) and Private Machinery Orders (better than expected) , UK, Swedish and South Africa CPI, and India’s WPI to digest. Ahead lie UK ONS House Prices, Eurozone Industrial Production, Brazil’s monthly GDP and US Import and Export Prices, while this evening brings New Zealand’s Q3 GDP. Earnings from Inditex and TUI, and US homebuilder Lennar will also attract some attention.

** U.K. – November CPI **
Both headline (0.4% m/m 10.7% y/y) and core (6.3% y/y) measures came in somewhat below expectations, with the sharp upward push from Utilities in October fading (0.3% m/m vs. Oct 3.4%), though Food (1.1% m/m) and Recreation (0.6% m/m) continued to put upward pressure, but were offset by a sharp drop in Communication (-0.8%), and in y/y terms by Motor Fuels. The risk of a majority voting for a 75 bps hike at tomorrow’s BoE meeting would thus appear to have been mitigated, but there is still likely to be a 3-way split. As noted in the week ahead, base effects will start to kick in quite heavily in Q1, even if April 2023 will see yet another boost to household energy prices.

** U.S.A. – FOMC rate decision **
The consensus looks for a 50 bps hike to a 4.25/4.50% Fed Funds target, with the dot plot as ever the initial point of focus, with a higher 2023 (median) peak of 4.9% likely (though markets now discounting a peak 10 bps lower at 4.84 than prior to yesterday’s CPI), and also implying rates will only start to fall in 2024 to around 4.0% and 3.0% in 2025 (markets are discounting a first rate cut by end of Q3 2023). As important will be the FOMC participants median forecast for inflation, which will be hiked by 0.2/0.3 ppts for 2022 and 2023 (Sept estimate 5.4% and 2.8% respectively), with 2024 and 2025 estimates held at 2.3% and 2.0%; adjustments to Unemployment estimates will likely be no more than tweaks. Given some divergence in Fed speakers’ views from the near unanimity for much of the year, the range of estimates may also widen. The message from Powell is likely to be that a slower pace of rates hikes does not mean any easing in the fight to bring inflation down, but will give them room to assess the cumulative impact of their policy tightening. He will probably welcome yesterday’s CPI drop, but stress that inflation remains ‘way too high’, and that the FOMC would rather unwind ‘overtightening’ than prematurely take their foot off the tightening pedal (this has been the Fed’s line for quite some time). The question is whether the statement or Powell offers any tweaks or refined guidance to the line: “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”, i.e. is a view emerging on what terminal rate would be “sufficiently restrictive”. Given the easing in Financial Conditions since October (perhaps most notably USD term SOFR futures contracts trading at multi-month highs), they may well want to