Federal Reserve officials are outlining plans to reduce their benchmark overnight interest rate throughout 2024. That being said, the precise timing and pace of the said decrease hinge on upcoming inflation and employment statistics.
The next Fed meeting, planned for January 30-31, is anticipated to maintain the current rate range between 5.25% and 5.50%, but the incoming data may affect the rate trajectory.
Chair of the Federal Reserve of the United States Jerome Powell closely watches the U.S. Department of Labor's Job Openings and Turnover Survey (JOLTS) to assess imbalances in labor supply and demand, with a specific focus on open job opportunities for the unemployed.
While the ratio is demonstrating a decline, it remains above pre-pandemic levels, standing at approximately 1.4:1 in November, down from the pre-pandemic level of 1.2:1. Other metrics, such as job refusal rates, have reverted to pre-recession levels.
Annual inflation, as gauged by the Fed's preferred personal consumer spending price index, dropped to 2.6% in November, experiencing a month-over-month decline for the first time since April 2020. The core index, excluding food and energy prices, also dropped to 3.2%, marking its lowest level since April 2021.
During the Fed's last policy meeting in 2023, officials anticipated further improvement in both inflation measures for the upcoming year.
The Consumer Price Index (CPI) witnessed a drop to 3.1% annual inflation in November, with core inflation maintaining stability at 4.0%. However, the annual figures have shown a consistent decline in recent months.
November saw a 0.3% increase in retail sales, sustaining the robust economic growth trend observed throughout 2023. That being said, the growth rate in consumer spending is slowing, and the Federal Reserve is keenly awaiting signs that its agressive interest rate hikes are beginning to impact overall demand for goods and services.
Despite strikes involving approximately 40,000 workers, the most recent employment report revealed displayed ongoing robust job growth, climbing to 199,000 in November from the previous month's 150,000. The unemployment rate also dipped to 3.7% from 3.9%, aligning with the Fed's perspective on potential economic development with reduced inflation.
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