Markets Wait for December Fed Meeting After Blowout November Jobs report
The Fed’s policy has been a major driver of the US stock market this year, as the US central banks have taken the most aggressive monetary tightening in decades. What can we expect from the Fed’s December meeting following a rousing November jobs report?
The November nonfarm payrolls rose by 263,000, which was much higher than the expected 200,000. The Labor Bureau also revised upwards the October nonfarm payrolls, to 284,000.
A strong jobs report is usually a positive for stocks. Investors see strong jobs reports as a negative in a market where aggressive Fed rate increases are the greatest risk to markets. It might encourage the Fed to keep raising rates quickly.
Economists had expected 0.6% wage growth in November, which was double what it was. Jerome Powell, Fed chair, raised concerns about strong wage growth when he spoke at the Brookings Institution earlier in this week.
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He stated that there are only “tiny signs” of a rebalancing in the job market, and that wage growth is well above levels that would be consistent at 2% inflation.
A Hawkish Fed Could Be Encouraged by Strong November Job Reports
The Fed is concerned that inflation could become entrenched due to high rents and wages. The US central bank stated that inflation was temporary about a year ago. It soon stopped. The US inflation reached a peak of 9.1% in June, a record high for the country over four decades. It has been gradually falling since then.
CPI inflation was 7.7% in October, which was lower that analysts expected. The Fed will release the November CPI data later in the month. This would be the last important economic data before its December meeting.
Data released this week earlier showed that core personal consumption expenditure, which the Fed considers a key indicator, rose by 0.2% in October, slightly less than expected.
The 2022 Highs of Inflation Have Come Off
Many economists think that inflation will drop significantly next year. However, Bill Ackman from Pershing Square Holdings believes it won’t. He believes it won’t be below the Fed’s target range of 2% any time soon.
The US stock market has suffered from higher inflation, particularly for growth stocks. There are a few investments that can be successful in inflation.
The Fed wants to reduce the rate of hikes after the November 75-basis point rate increase, which brought the total 2022 hikes to 3.75%. According to the November Fed minutes, “A substantial majority” of participants believed that a slower pace of growth would be appropriate soon.
They said, “A slower pace would be better for the Committee to evaluate progress towards its goals of maximum employment & price stability.”
Fed Says It Could Slow Down the Pace of Hikes
Powell also spoke at the Brookings Institution speech about slowing the rate of hikes. He said that “the time to moderate the pace for rate increases may be as soon as the December meeting.”
Powell said, “My colleagues, I don’t want to overtighten…cutting rates [is not something we want] soon.” Cathie Wood, ARK Invest, also spoke about the lag effect of monetary policy decisions.
Yesterday’s strong November jobs report saw US stocks roaring back after yesterday’s sharp decline. Stocks were initially lower, but they recovered quickly and the Dow Jones closed with marginal gains.
All eyes will now be on the November inflation reading, and the Fed meeting that follows. This would determine whether or not there is a Santa Claus rally.
Professor Jeremy Siegel of Wharton predicts that the Fed will halt its rate increases after a 50-basis rate point rate increase in December. He stated that the markets will not retest their 2022 lows, and that they can return 30% over the next two-years. Here is a guide to buying stocks from a licensed broker.