Ready for FOMC

The Bureau of Economic Analysis published yesterday the Fed’s favorite inflation indicator, The PCE. Since the FOMC for December meets next week, an is expected to lower rates, the market was somehow anxious to see the data. It grew 0.2% MoM as expected for a YoY growth of 2.8%. Still far from the 2% target, but stable, which can be considered a success in the context of tariffs. As you can see in the chart below, the PCE has been on a range for 2 years, sticky and unable to go down to the target, but below 3%. The expectations for rate cuts next week have not moved significantly, and remain above 82%, which indicates that the absence of cuts would be a huge surprise the market will not like. On top of that, dissenters at the table, want more cuts than just 25 bps, including the president’s favorite, Kevin Hasset. Now that the inflation hurdle seems to be cleared, the discussion is likely to pivot to unemployment, where the latest layoff news are painting a sour picture, particularly for small business, the backbone of the U.S. job market, where jobs are being cut at a much higher rate than big corporations. The market is waiting for the Fed to acknowledge that and push stocks in the last 2 weeks of the year in wha is known as th Santa Claus rally.

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