Macro Report

Last Week’s Takeaway:

The biggest news is that the FOMC signaled that the hiking cycle is officially over. While risks remain – inflation, labor market, and overall economic activity suggest we are trending towards a soft landing.


The week started on a promising note, with the NY Fed 1yr inflation expectations continuing to soften. This, coupled with last week’s preliminary University of Michigan near-term inflation expectations both show diminishing risk of a spiraling “inflationary psychology” among consumers.

Furthermore, overall inflation data came in slightly softer than expectations for November. Core CPI YoY was unchanged at 4%, while the Topline CPI printed 3.1%, in line with expectations and down from last month’s 3.2% print. PPI (ex food & energy) YoY came in at 2%, below expectations of 2.2% and down from October’s print of 2.4%. The clear takeaway is that price pressure is cooling and there is additional disinflation in the pipeline.

On Wednesday, the FOMC met and unanimously voted to hold interest rates steady at 5.25-5.5%. Furthermore, they are no longer pricing any additional rate hikes and have 75bps of cuts priced into the 2024 forecast. Further embedded in the SEP (Summary of Economic Projections) is a forecast for lower levels of 2024 year end inflation (2.4% Core PCE and unchanged 4.1% unemployment).

Finally, Industrial data showed mixed results. The Fed’s industrial production – manufacturing index printed positive MoM growth of 0.3%, below expectations of 0.5%, but meaningfully higher than the October print of -0.7%. The Empire (NY) FED manufacturing survey printed down to -14.5, well below expectations of slight growth at 2.1. The mix of these signals clearly shows that the recovery on the industrial side will be a bumpy road. However, if the soft-landing scenario does materialize, the major headwind of higher interest rates will soon be removed.

Next Week’s Notes:

This upcoming week, the housing market’s data releases will shed light on its current state as challenges such as limited inventory, elevated prices and high interest rates, alongside pent-up demand, continue to weigh on the market. Projections suggest a dip in Building Permits to 1460k and a slight decrease in Housing Starts to 1360k, down from October’s 1372k, which beat expectations due to constrained supply bolstering new construction activity. Existing Home Sales are expected to fall to 3.77m, a decrease from October’s 3.79m, which marked the lowest level since August 2010. On the other hand, market consensus anticipates a reversal in the recent downtrend of the NAHB Housing Marking Index, with a forecasted 4-point increase to 38 for December data. Should this materialize, it would end the four-month decline, culminating from the substantial impact of high mortgage rates on both builder confidence and consumer behavior, which drove the index to its lowest point since December 2022.

To this end, notably, the average 30-year fixed rate has fallen by over half a percentage point since hitting a 2023 high in October. This signal of easing, coupled with the Fed’s potential rate cuts in 2024, provides some upside for potential housing market relief as we transition into the new year. Additionally, the PCE Core Deflator YoY November data will be released, which has market expectations of further deceleration to 3.4% from October’s 3.5%, clearly indicating inflationary relief.

For business activity, the December data for the Philadelphia Fed Business Outlook survey will be reported, with market expectations of an improvement to -3 from the previous month’s -5.9 reading. Despite remaining in contraction territory, the forecast points towards an emerging upward trajectory as we head into 2024.