Fed Minutes Express Caution

Word for the Week: Algorithm

According to Merriam-Webster the term was formed from "algorism" meaning “the system of Arabic numerals” . This then gave rise to the Latin term “algoritmi” which evolved into the English word “algorithm,” used today to describe a set of rules or steps for solving a problem.

Fed Minutes Express Caution

Yesterday evening saw the release of the Fed’s minutes from their November meeting, where policy makers conducted a 25bps rate cut to bring their benchmark rate to a 4.5-4.75% target range.?

While the minutes underlined how further progress had been made on bringing down inflation, the central bank telegraphed that they would remain cautious in easing monetary conditions. Here, they noted that the options-implied modal path and the futures-implied average path had increased since their last meeting, indicative of how markets are considering that the Fed may have maintain monetary conditions higher for longer. Such views have been expressed not least in the wake of the Republican Sweep and views that some of Trump’s policies including tax breaks, tariffs and deregulation could be inflationary.

If present trends continue, the minutes expressed some hawkish undertones, indicating that it “would likely be appropriate to move gradually toward a more neutral stance of policy over time”. Hawkish undertones were also expressed with some members saying that the Fed “could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated”.

Following suit with other minutes, the Fed reiterated how decisions concerning monetary policy would be data dependent.

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Markets Look to PCE Figures

As markets continue to consider the future monetary policy pathway of the Federal Reserve, at 1430 this afternoon all eyes will be on the release of the PCE figures – the Fed’s preferred gauge of inflation.

Following in the wake of CPI figures released earlier this month (which indicated that the headline inflation rose 20bps to 2.6%), PCE (annualised) is also expected to rise (in this case from 2.7% to 2.8%).

Meanwhile, core PCE (annualised) is expected to see a marginal increase to 2.8%, which if realised would represent the highest print since April. On a monthly basis, markets are also forecasting the PCE rate to come in at 0.3%, an increase on last month’s print. The expected rise in inflation comes as the US economy continues to grapple with inflationary pressures stemming from a robust labour market, wage growth and comparatively strong growth.

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CBI Points to Concerns in UK Retail Sector

According to data from Confederation of British Industry, retail sales suffered a sizable decline over November with a fall in confidence and demand being cited as a key driver behind the fall. According to the trade body, retail sales volumes fell by 18% in November, representing the sharpest decline since August and coming in the wake of October’s contractionary print of 6%.

Such concerns and contractions are also causing retailers to forecast a reduction in investment over the next 12 months.

As attention turns to Christmas sales, the CBI warned that “retailers expect annual sales growth to deteriorate” with sales below average. According to the report’s findings, sales are forecast to ease come under further pressure next month with the index slipping to -15%.

Commenting on the data release, an economist at the CBI highlighted that “The stark rise in Employers' National Insurance next year will hit retailers hard. And the planned increase in business rates for higher-value properties will add significant operational costs for distribution centres.”

With the UK’s retail sector accounting for ￡112.8 billion of economic output in 2023 (or around 4.9% of the country’s GDP), bodies like the CBI are calling for Westminster to show more support. As such, a spokesperson at the organisation called on the government to partner with business to help alleviate cost burdens in an effort to encourage investment.

The concerns raised by the CBI and their data release come just days after markets reacted negatively to miss on UK retail sales. Here, UK Retail Sales fell well shy of expectations falling 0.7% on a monthly basis over October, with the ONS similarly citing how retailers spoke of uncertainty around the budget as a leading factor behind the fall in sales.