Inflation Reports and Fed Rate Cut Decision: Key Economic Updates for This Week

As the Federal Reserve approaches its final meeting of 2024, all eyes are on crucial economic data set to be released this week. Recent tech-driven stock market gains have fueled optimism, with major indexes reaching new highs. However, upcoming inflation reports could influence the Fed’s decision on whether to cut interest rates at its December 18 meeting.

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Inflation Reports Take Center Stage

Last week, the Dow Jones Industrial Average fell by 0.5%, while the Nasdaq Composite surged more than 3%, and the S&P 500 gained nearly 1%. The main focus for investors now is the release of the Consumer Price Index (CPI) on Wednesday, followed by the Producer Price Index (PPI) on Thursday. These figures will be pivotal in determining the Fed's next move regarding interest rates.

Economists are predicting that the CPI will show a 2.7% annual increase in November, slightly higher than October’s 2.6%. Month-over-month, a 0.3% increase is expected, which would mark a modest rise compared to September’s 0.2% gain. The core CPI, which excludes food and energy, is forecasted to remain steady at a 3.3% annual increase. Monthly core inflation is also expected to match October’s 0.3% rise.

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Wells Fargo’s economic team, led by Jay Bryson, noted that while disinflation is slowing down, challenges like potential tariffs and tax cuts could make it difficult for inflation to reach the Fed's 2% target soon. This ongoing inflation issue could push the Fed to stay cautious about its rate cuts, despite market expectations.

Job Report’s Impact on Fed Expectations

Last week, the U.S. added 227,000 new jobs in November, surpassing the 220,000 anticipated by economists. However, the unemployment rate increased to 4.2%. While this data suggests the labor market is cooling, it isn’t enough to prompt the Fed to alter its plan for a rate cut. BlackRock’s Rick Rieder explained that this week’s CPI and PPI reports will play a crucial role in shaping the Fed's decision.

Stephen Brown from Capital Economics also emphasized that these inflation numbers will be key in determining whether the Fed follows through with a rate cut in December. As of last week, market pricing showed an 85% chance of a 0.25% rate cut at the Fed’s December meeting.

Tech Stocks Lead Market Gains

In the past week, major tech stocks continued to drive market gains. The "Magnificent Seven" — Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia — outperformed the S&P 500, with Meta, Amazon, and Apple even reaching record highs. This trend is helping build confidence among investors, with expectations that the tech sector could remain strong moving into 2025.

Keith Lerner from Trust Investment Advisors noted that tech has outperformed the S&P 500 on a three-year basis, a sign that this sector still has momentum. He pointed out that while tech’s recent performance is not as extreme as during the dot-com bubble, it indicates potential for further growth. “Every bull market has a theme,” Lerner said. “If the bull market is still going strong, this trend is likely to continue until it peaks.”

What to Watch This Week

Monday

• Economic Data: Wholesale inventories (October), New York Fed inflation expectations (November)

• Earnings: Casey’s, C3.ai, MongoDB, Rent the Runway, Oracle, Toll Brothers, Vail Resorts

Tuesday

• Economic Data: NFIB Small Business Optimism (November), Nonfarm Productivity (Q3), Unit Labor Costs (Q3)

• Earnings: AutoZone, Academy Sports, Dave & Buster’s, GameStop, Stitch Fix

Wednesday

• Economic Data: MBA Mortgage Applications, CPI (monthly and annual), Core CPI (monthly and annual), Real average hourly earnings (November)

• Earnings: Adobe, Macy’s, Vera Bradley

Thursday

• Economic Data: Initial jobless claims, PPI (monthly and annual)

• Earnings: Broadcom, Costco, Lovesac

Friday

• Economic Data: Import and export prices (November)

• Earnings: No major releases

This week’s economic updates, especially the inflation data, could set the tone for the Fed’s final interest rate decision of the year. Investors and analysts will be looking for any signs that inflation is slowing or accelerating, as this will influence whether the Fed maintains or adjusts its rate-cut plans. With the tech sector leading the market's gains, the broader economic outlook remains a mixed picture, with December’s data playing a critical role in shaping market sentiment heading into 2025.

Also Read: 2025 Tax Bill Coming Soon: Investors May Have to Wait for Full Details and Clarity