Evelyn Reynolds

Turkey’s central bank on Thursday hiked its key interest rate to 45%, in line as expected.
Inflation in Turkey increased to 64.8% year-on-year in December, up from 62% in November.
Meanwhile, the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January, breaking 30 to the greenback for the first time.

Residents waiting at a bus stop under a large Turkish flag in Istanbul, Turkey, on Sunday, April 30, 2023.
Bloomberg | Bloomberg | Getty Images

Turkey’s central bank on Thursday hiked its key interest rate by another 250 basis points to 45%.
The hike to the benchmark one-week repo rate was in line with economists’ expectations.

It comes amid an ongoing battle against double-digit inflation for Turkey’s monetary policymakers, with the rate hike the latest step in that effort.
Inflation in Turkey increased to 64.8% year-on-year in December, up from 62% in November, and the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January, breaking 30 to the greenback for the first time.
Analysts predict this will be the last hike for some time, especially with local elections approaching in March.
“Encouragingly, the communications were relatively hawkish and suggest that policymakers recognise the need to keep interest rates high for a prolonged period if they are to have success in bringing inflation back down to single digits,” Liam Peach, senior emerging markets economist at London-based firm Capital Economics wrote in a note. “Our baseline view remains that the central bank will keep rates unchanged throughout this year.”
The Central Bank of the Republic of Turkey itself signaled that this was likely the end of the tightening cycle, saying of its decision: “The monetary tightness required to establish the disinflation course is achieved … The current level of the policy rate will be maintained until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range.”

The central bank’s move is the latest in a series of interest rate increases — now eight consecutive hikes since the May 2023 elections — that have been painful for Turks, as the country grapples with a dramatically weakened currency and skyrocketing living costs.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.
Anadolu Agency | Anadolu Agency | Getty Images

The last several years of high inflation are in large part the result of stubbornly loose monetary policy by the Ankara government. The lira is down 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the last five years. 
A new finance team was appointed in June last year, and Turkey’s central bank embarked on a sharp pivot, pulling rates higher under the supervision of Turkish Central Bank governor Hafize Erkan. The country’s benchmark interest rate has since been lifted from 8.5% to 45%. 
Still, some observers still don’t believe it’s enough to effectively bring down inflation.
Capital Economics expects Turkey’s inflation to drop “towards 30-35% by year-end” from 65% now, while Bartosz Sawicki, a market analyst at Conotoxia Fintech, sees it hitting close to 75% in May before starting to fall.
“The cumulative tightening of 3650 basis points may not be enough to decisively tame Turkey’s long-standing inflation problem,” Sawicki said, which he described as being caused by “a vicious mix of loose monetary policy, deep negative real interest rates and persistent lira weakness.”Broadly, analysts expect the central bank to hold rates for the rest of the year — and no rate cuts anytime soon.
“Inflation and inflation expectations will need to have fallen a long way before the central bank starts to cut interest rates,” Peach wrote. More

“Transforming Spaces” is a series about women driving change in sometimes unexpected places.Jam the towel under the door. Open the window. And hide the bong.For decades, college students have found ways to mask the pungent aroma of marijuana smoke on campuses. Wanda James, however, did not always feel a need to hide. A 1986 graduate of the University of Colorado Boulder, Ms. James would sit on the steps outside her dorm and roll joints with her friends.It would be decades before Colorado became one of the first two states in the country to legalize recreational cannabis, but on campus, James never worried.“The worst that would happen is they would tell us to put it away, or they might take it from us, and that was the end of it,” Ms. James recalled of the campus police.Fast forward 40 years: Ms. James, a former Navy lieutenant, is a member of her alma mater’s Board of Regents — and a prominent advocate of racial justice in the changing cannabis landscape.It wasn’t until after college that Ms. James realized she had been living in something of an alternate reality with her cannabis use. She learned how the United States’ marijuana laws have led to Black Americans’ being sentenced to prison at a higher rate than white Americans despite near equal usage rates, setting her on the mission to which she has dedicated her life.Ms. James, the chief executive of the Simply Pure dispensary in Denver, is licensing her company’s name to entrepreneurs in the cannabis industry who are from communities that had once been hotbeds of marijuana arrests.Rachel Woolf for The New York TimesMs. James, 60, has owned multiple cannabis businesses over the years, including a pair of dispensaries and an edible company, which has given her a platform to speak about what she believes to be racial injustices in the industry. She has been at the forefront of calling for cannabis legalization at the state and federal level. Federal scientists, in recent reports, have recommended easing restrictions on marijuana, a so-called Schedule I drug like heroin, and having it reclassified to a Schedule III drug, along with the likes of ketamine and testosterone.“Wanda is a force of nature!” said Senator John Hickenlooper, the former Colorado governor who named Ms. James to a task force that came up with recommendations on how to regulate marijuana in Colorado. Those recommendations became a model for the two dozen states that have since legalized the sale of cannabis in recreational dispensaries.But as more states have legalized the sale of recreational cannabis, prompting bigger companies to get involved in an industry that is increasingly mainstream, Ms. James is one of the few Black women in a leadership role. Several smaller cannabis businesses, mostly run by people of color and women — many of whom were caregivers who saw the benefits of medical marijuana for those they cared for — have been pushed out of the space, Ms. James said.In fact, ownership by women of cannabis companies fell to 16.4 percent in 2023 from 22.2 percent in 2022 with racial minorities accounting for just 18.7 percent of owners, according to a report from MJBiz Daily, a publication that covers cannabis-related legal and financial news.These days, Ms. James is not only pushing for wider cannabis legalization — recreational use of the plant is legal in 24 states and the District of Columbia but illegal on the federal level — but also for reform in the industry to ensure more people who look like her fill leadership roles.She believes that by becoming a dispensary owner, and now a leader in an industry with policies that have historically harmed Black and Latino Americans, she could reclaim some power for minorities targeted in communities that were hotbeds of marijuana arrests. In New York, for instance, state cannabis regulators documented a staggering 1.2 million marijuana arrests that disproportionately targeted Black and Latino Americans over 42 years.“There is so much happening in the industry to where it has not been a promising place that looks to diversity as a positivity right now,” she said. “We are trying to find out ways to help.”Ms. James grew up in rural Colorado on a ranch filled with dogs, rabbits, chickens and guinea pigs. Her father, a single parent and Air Force veteran, was a cowboy and they often rode horses together.As a businesswoman and a shaper of marijuana policy, Ms. James has been honored by the Colorado Women’s Chamber of Commerce and High Times Magazine, among other organizations.Rachel Woolf for The New York TimesThe penchant for caring for animals has continued. Ms. James has housed more than 30 dogs over the years, including some she found on the street. Like her father, she joined the military, becoming the first Black woman to complete the University of Colorado’s ROTC program. She served four years in the Navy before moving to Los Angeles, where she worked for two Fortune 100 companies. She also met her husband, Scott Durrah, then a property manager in West Hollywood and a fellow pot smoker, with whom she opened several restaurants in Colorado and California. Ms. James’s Rottweiler, Onyx, was the maid of honor at their wedding.While the couple were building their businesses, the country was feeling the long-term impact of President Ronald Reagan’s hard-line policies on cannabis. Mr. Reagan’s Comprehensive Crime Control Act of 1984 and Anti-Drug Abuse Act of 1986 — the year Ms. James graduated from college — “flooded the federal system with people convicted of low-level and nonviolent drug offenses,” according to the Brennan Center for Justice. In 2007, nearly 800,000 people were arrested for simple marijuana possession, the F.B.I. reported. About 80 percent of those arrested were Black. .“It was the demographic least likely to have a family friend that was an attorney and the least likely to have parents or family money to be able to get them out of the situation that night,” Ms. James said.Those statistics remained front of mind for Ms. James as she pursued cannabis business ownership and worked behind the scenes in politics.Ms. James at an election-night watch party in 2022. She has been at the forefront of campaigning for cannabis legalization at both state and federal levels.David Zalubowski/Associated PressIn 2008, Ms. James managed the successful congressional campaign of Jared Polis, a Democrat who was elected Colorado’s governor in 2018. The following year she and Mr. Durrah opened the Apothecary of Colorado, a medical cannabis dispensary, becoming the first African Americans to own a legal dispensary in the United States. They later closed the medical dispensary to open an edibles company, Simply Pure, which in 2015 became Simply Pure Denver, a recreational dispensary.“She’s a trailblazer,” said Tahir Johnson, a mentee of Ms. James. “When you think about a strong Black woman, that’s what she embodies.”As she became a businesswoman and a shaper of marijuana policy, she had a personal point of reference that she has returned to often in her work: her half brother, who served time in prison for offenses including marijuana possession.The cannabis industry “has not been a promising place that looks to diversity as a positivity right now,” Ms. James said.Rachel Woolf for The New York TimesMs. James has shared her journey in short documentaries produced by The Atlantic and Yahoo, and in 2018, she was named one of the 100 Most Influential People in the cannabis industry by High Times Magazine. She has used her platform to call for federal cannabis legalization, which would help dispensary owners inject some of the money they’ve been paying in taxes back into their businesses, increasing the likelihood of creating “generational wealth,” she said; because recreational cannabis is still illegal on the federal level, dispensary owners are unable to write off basic expenses, like staff salaries, unlike noncannabis businesses.And she’s tapping into her network to create change. Beginning with Mr. Johnson, her mentee, Ms. James is licensing the Simply Pure name to young entrepreneurs in the industry who are from communities harmed by racial disparities in marijuana arrests.Mr. Johnson said he had been arrested three times for marijuana possession, and he was “honored” Ms. James chose him to continue her legacy. He plans to open Simply Pure Trenton soon.“The fact that she’s trusted me to take on this mantle to this next phase of the organization means a lot to me,” he said. More

Fourth-quarter gross domestic product is expected to show growth at a 2% seasonally adjusted annualized pace.
As the Commerce Department’s report hits Thursday morning, Wall Street’s attention almost immediately will turn to what the signs are for growth going into 2024.
Two other key elements will take the focus as investors digest the report: the state of consumer spending, which accounted for about two-thirds of all activity in Q3, and inflation.

Consumers shop in Rosemead, California, on Dec. 12, 2023.
Frederic J. Brown | Afp | Getty Images

Economic growth likely slowed to its weakest pace in a year and a half to end 2023, possibly setting the stage for a more pronounced slowdown ahead, according to Wall Street economists.
The consensus outlook for the fourth quarter is that gross domestic product grew at a 2% seasonally adjusted annualized pace, sliding downward from the 4.9% in Q3 and the lowest reading since the 0.6% decline in the second quarter of 2022.

As the U.S. Department of Commerce’s report hits Thursday morning, Wall Street’s attention almost immediately will turn to what the signs are for growth going into 2024.
The report likely will “represent a sharp deceleration” from the previous period, Bank of America economist Shruti Mishra said in a client note. “Incoming data continue to point to a resilient, but cooling, U.S. economy, led by consumer spending on the back of a tight labor market, higher than expected holiday spending, and moderately strong balance sheets.”
BofA has a below-consensus view that GDP — the sum of all goods and services produced during the period — will slow to a 1.5% pace, largely because parts of the economy not directly related to consumer spending, such as nonresidential business fixed investment and housing, will tail off.
In addition, the bank expects a slowdown in inventory restocking to shave close to a full percentage point off the headline number.
Looking forward, BofA forecasts the first quarter of 2024 to show growth of just 1%.

“Consumer spending is likely to slow from its current pace due to lagged effects from tighter financial conditions, higher energy prices, and cooling labor market,” Mishra said.
Elsewhere on Wall Street, expectations are mixed.
Goldman Sachs earlier this week lifted its Q4 estimate to 2.1%, an increase of 0.3 percentage points, taking its full-year GDP outlook to 2.8%. One significant factor Goldman sees is stronger-than-expected state and local government spending, which boosted Q3 growth by nearly a full percentage point and is predicted to show a 4.5% increase in the final three months of the year.
The bank’s economists also see growth holding up fairly well in 2024, ending the year at 2.1%.
Two other key elements will take the focus as investors digest the GDP report: the state of consumer spending, which accounted for about two-thirds of all activity in Q3, and inflation, specifically how the Federal Reserve might react to personal consumption prices that come out of Thursday’s report as well as a separate Commerce Department release Friday.
“We do expect the economy to slow … further in 2024 as the impact of monetary tightening continues to weigh on economic activities,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “However, we do not expect the economy to hit a recession.”

RSM expects the GDP report to show a 2.4% gain on solid growth in consumer spending, though some economists say December’s larger-than-expected retail sales increase was fueled by seasonal distortions in the data that will be corrected in January.
Citigroup agrees with the consensus call of 2% growth in Q4 but sees tougher times ahead, mainly because of the lagged effect the Fed’s previous rate cuts will exert, as well as inflation that could turn out to be more durable than anticipated.
“Data released [Thursday] may in retrospect turn out to document the one quarter of true ‘Goldilocks’ conditions,” Citi economist Andrew Hollenhorst wrote. “But we do not share the market and Fed’s sanguine assessment of the macroeconomy over the remainder of the year.”Don’t miss these stories from CNBC PRO: More

With climate change affecting everything from household finances to electric grids, the profession is increasingly focused on how society can mitigate carbon emissions and cope with their impact.A major economics conference this month included papers on wind turbine manufacturing, wildfire smoke and the stability of electricity grids.From left: Joe Buglewicz for The New York Times; Earl Wilson/The New York Times; Zack Wittman for The New York TimesIn early January in San Antonio, dozens of Ph.D. economists packed into a small windowless room in the recesses of a Grand Hyatt to hear brand-new research on the hottest topic of their annual conference: how climate change is affecting everything.The papers in this session focused on the impact of natural disasters on mortgage risk, railway safety and even payday loans. Some attendees had to stand in the back, as the seats had already been filled. It wasn’t an anomaly.Nearly every block of time at the Allied Social Science Associations conference — a gathering of dozens of economics-adjacent academic organizations recognized by the American Economic Association — had multiple climate-related presentations to choose from, and most appeared similarly popular.For those who have long focused on environmental issues, the proliferation of climate-related papers was a welcome development. “It’s so nice to not be the crazy people in the room with the last session,” said Avis Devine, an associate professor of real estate finance and sustainability at York University in Toronto, emerging after a lively discussion.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

“I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” Shaun Rein, founder of the China Market Research Group, told CNBC Monday.
He forecasts that China will experience “another 3-6 months minimum of a very painful economy.”
The world’s second-largest economy has faced a slower-than-expected recovery in 2023 after exiting Covid-19 restrictions.

BEIJNG, CHINA – NOVEMBER 13: Illuminated skyscrapers stand at the central business district at sunset on November 13, 2023 in Beijing, China. (Photo by Gao Zehong/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

Deflation may soon start biting into Chinese growth, as Beijing looks at another three to six months of a “very painful economy,” according to one analyst who covers the country.
“This is something investors need to be cautious of. The economy here is bad, it’s pretty … it’s really bad. I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” Shaun Rein, founder of the China Market Research Group, told CNBC’s “Squawk Box Europe” on Monday.

“So deflation is starting to wield its ugly head. Consumers are waiting for discounts. They’re very nervous.”
Linked to a decline in the prices of goods and services, deflation is generally associated with an economic slowdown — raising questions over the growth outlook for China, whose post-Covid-19 recovery has already fallen short of some expectations in 2023. In December, depressed prices for pork — which makes up around a fifth of China’s CPI basket — heralded the possible advent of deflation.
“Deflation is a serious issue, I know the Chinese government doesn’t want me saying it, but it’s an issue that we need to be worried about,” Rein stressed. “So I am kind of surprised that they kept the prime rates unchanged. You know, it would have been nice if they had lowered them to try to get some stimulus into the country.”
Earlier on Monday, the People’s Bank of China held its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively, in line with forecasts. These are the pegs for most household and corporate loans in China and are one of many levers that the PBOC usually pulls in an effort to stimulate the economy.
The decision comes amid infectious expectations among investment banks that China’s economy will expand at a more sluggish pace in 2024. Beijing has set an official growth target of 5% this year, with Premier Li Qiang telling the World Economic Forum in Davos, Switzerland, last week that the Chinese economy swelled by a marginally higher 5.2% in 2023.

At the time, Li highlighted that China did not achieve its economic development through “massive stimulus” and “did not seek short-term growth while accumulating long-term risks.” “Rather, we focused on strengthening the internal drivers,” Li said.
Despite this, the International Monetary Fund in November outlined a forecast for China’s growth to slow in 2024 to just 4.6%. In a more recent Jan. 15 report, Moody’s assessed that China’s real GDP growth would hit 4% this year and in 2025, from an average of 6% between 2014 and 2023.

Economic slowdown is widely seen as a potential threat to Xi Jinping, whose Chinese Community Party has cultivated national political legitimacy through rapid growth. China’s status as the world’s second-largest economy has also solidified its international footing, making it and heavyweight energy exporter Russia the epicenter of the BRICS emerging markets group.
Yet Rein says that Beijing may stomach a “slight rough time” as long as the economy retains 5% growth, as the administration focuses on social transformation.
“The Communist Party of China doesn’t necessarily want a restructuring of the economy, they want a reform of society, so it’s a much bigger picture … Which is why I don’t think the government is going to want a major stimulus, so the new normal is going to be 4-5% growth over the next 3-5 years,” he said.
“I think you’re gonna deal with another 3-6 months minimum of a very painful economy, as China restructures, or as China, you know, transforms its economy towards a more slower-growth, fairer society.”
Among the more tremulous sectors of the Chinese economy, Rein identified the country’s once-bloated real estate market, which accounts for roughly a third of China’s economic activity and has been tumbling sharply since Beijing’s broad-stroke crackdown on the debt levels of mainland property developers. Real estate giants Evergrande and Country Garden have become key casualties of the clampdown.
“[Buyers] think housing prices might continue to drop, so even if there’s pent-up demand for housing, a lot of home buyers are telling us, we’re not going to buy this month, we’re not going to buy this quarter, because we’re scared prices are going to drop another couple [of] percent in the coming months,” Rein said Monday.
Such a consumer behavior could compound some expectations that China could take more than 10 years to liquidate the current overhang in its housing inventory. More

The White House is embracing a nascent uptick in economic sentiment. It is likely good news — but how it will map to votes is complicated.Low approval ratings and rock-bottom consumer confidence figures have dogged President Biden for months now, a worrying sign for the White House as the country enters a presidential election year. But recent data suggests the tide is beginning to turn.Americans are feeling more confident about the economy than they have in years, by some measures. They increasingly expect inflation to continue its descent, preliminary data indicates, and they think interest rates will soon moderate.Returning optimism, if it persists, could bolster Mr. Biden’s chances as he pushes for re-election — and spell trouble for former President Donald J. Trump, who is the front-runner for the Republican nomination and has been blasting the Democratic incumbent’s economic record.But political scientists, consumer sentiment experts and economists alike said it was too early for Democrats to take a victory lap around the latest economic data and confidence figures. Plenty of economic risks remain that could derail the apparent progress. In fact, models that try to predict election outcomes based on economic data currently point to a tossup come November.“We’re still very early in the election cycle, from the perspective of economic factors,” said Joanne Hsu, who heads one of the most frequently cited sentiment indexes as director of consumer surveys at the University of Michigan. “A lot can happen.”The University of Michigan’s preliminary survey for January showed an unexpected surge in consumer sentiment: The index climbed to its highest level since July 2021, before inflation surged. While the confidence measure could be revised — and is still slightly below its long-run trend — it has been recovering quickly across age, income, education and geographic groups over the past two months.Confidence Is Still Down, but It’s ImprovingPreliminary January data from the University of Michigan survey suggested that consumer confidence is back at summer 2021 levels.

Note: Final datapoint, for January, is preliminary.Source: University of Michigan Consumer Sentiment SurveyBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the last two years.
Wieting told CNBC’s “Squawk Box Europe” on Monday that he is optimistic the global economy does not need an “economic collapse” to rein in inflation.
Investors will be closely watching Friday’s personal consumption expenditure (PCE) inflation figure, the Fed’s preferred metric, for further clues as to when the central bank will begin cutting rates.

Jim Dyson | Getty Images News | Getty Images

The global economy does not need a “collapse” in order to bring inflation back to target and return to sustainable growth, according to Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth.
Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the last two years. This has been particularly evident in the U.S., with recession thus far avoided and the labor market remaining robust.

Talk has now turned to rate cuts as inflation remains on a downward trajectory toward central banks’ targets, while growth has slowed.
Wieting told CNBC’s “Squawk Box Europe” on Monday that he is optimistic the global economy does not need an “economic collapse” to rein in inflation.
“We had one massive shock — one pandemic, one collapse. We didn’t need two recessions to ultimately cure our inflation problem,” he said.
“It’s holding down parts of our economy now — manufacturing and trade declines are happening around the world — but these are likely to bottom within the year.”

U.S. headline inflation came in at an annual 3.4% year-on-year in December, remaining above the Federal Reserve’s 2% target but down considerably from a peak of 9.1% in June 2022.

Investors will be closely watching Friday’s personal consumption expenditure (PCE) inflation figure, the Fed’s preferred metric, for further clues as to when the central bank will begin cutting rates.
Meanwhile, a preliminary estimate of fourth-quarter GDP is scheduled for Thursday, with the economy expected to have grown by 1.7%, its lowest rate since the 0.6% decline in the second quarter of 2022.
“This period of slower global growth and slowing employment growth in the United States we think can pass and lead to a healthier growth period if we take a look particularly at the next year and beyond, and that’s this year’s business for investors,” Wieting said.
He highlighted that while there is excess that needs to be worked out of the economy, this was not the result of a “true overheating” or prolonged “boom,” but instead of excess government fiscal stimulus related to the pandemic recovery that wasn’t going to be repeated.
“If you take a look at money supply in the United States, it declined 4% over the past year. Take a look at the 1970s, it was almost 10% growth for the entire decade, important prices surging 14% every single year — that’s … sustained inflation,” Wieting said.
“This story with just all of this government spending coming and going — upheaval in supply and demand, consumer spending going up or down 30% between goods and services, during the pandemic period — that’s not the environment we’re in any longer.” More

Two big economic reports coming up this week could go a long way toward determining at least which way the central bank policymakers could lean on policy.
Gross domestic product will be released Thursday and the personal consumption expenditures prices reading on inflation is out Friday.
” “It’s not about secret meetings or decisions. It’s fundamentally about the data” that will determine policy, Chicago Fed President Austan Goolsbee told CNBC.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 19, 2024. 
Brendan Mcdermid | Reuters

Markets have become less convinced that the Federal Reserve is ready to press the button on interest rate cuts, an issue that cuts at the heart of where the economy and stocks are headed.
Two big economic reports coming up this week could go a long way toward determining at least which way the central bank policymakers could lean — and how markets might react to a turn in monetary policy.

Investors will get their first look at the broad picture of fourth-quarter economic growth for 2023 when the Commerce Department releases its initial gross domestic product estimate on Thursday. Economists surveyed by Dow Jones are expecting the total of all goods and services produced in the U.S. economy to have grown at a 1.7% pace for the final three months of 2023, which would be the slowest since the 0.6% decline in Q2 of 2022.
A day later, the Commerce Department will release the December reading on the personal consumption expenditures price index, a favorite Fed inflation gauge. The consensus expectation for core PCE prices, which exclude the volatile food and energy components, is 0.2% growth for the month and 3% for the full year.

Both data points should garner a lot of attention, particularly the inflation numbers, which have been trending towards the Fed’s 2% goal but aren’t there yet.
“That’s the thing that everybody should be watching to determine what the Fed’s rate path will end up being,” Chicago Fed President Austan Goolsbee said during an interview Friday on CNBC. “It’s not about secret meetings or decisions. It’s fundamentally about the data and what will enable us to become less restrictive if we have clear evidence that we’re on the path to get” inflation back to target.

Lowered rate-cut outlook

The releases come amid a market snapback about where the Fed is heading.

As of Friday afternoon, trading in the fed funds futures market equated to virtually no chance the rate-setting Federal Open Market Committee will cut at its Jan. 30-31 meeting, according to CME Group data as indicated through its FedWatch Tool. That’s nothing new, but the odds for a cut at the March meeting fell to 47.2%, a steep slide from 81% just a week ago.
Along with that, traders have taken one expected cut off the table, reducing the outlook for easing to five quarter percentage point decreases from six previously.
The change in sentiment followed data showing a stronger-than-expected 0.6% growth in consumer spending for December and initial jobless claims falling to their lowest weekly level since September 2022. On top of that, several of Goolsbee’s colleagues, including Governor Christopher Waller, New York Fed President John Williams and Atlanta Fed President Raphael Bostic, issued commentary indicating that at the very least they are in no hurry to cut even if the hikes are probably done.

“I don’t like tying my hands, and we still have weeks of data,” Goolsbee said. “Let’s take the long view. If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness.”
Goolsbee noted that one particular area of focus for him will be housing inflation.
The December consumer price index report indicated that shelter inflation, which accounts for about one-third of the weighting in the CPI, rose 6.2% from a year ago, well ahead of a pace consistent with 2% inflation.
However, other measures tell a different story.
A new Labor Department reading known as the New Tenant Rent Index, indicates a lower path ahead for housing inflation. The index, which measures prices for new leases that tenants sign, showed a 4.6% decline in the fourth quarter of 2023 from a year ago and more than double that quarterly.

Watching the data, and other factors

“In the very near term, we think the inflation data will cooperate with the Fed’s dovish plans,” Citigroup economist Andrew Hollenhorst said in a client note.
However, Citi foresees inflation as stubborn and likely to delay the first cut until at least June.
While it’s unclear how much difference the timing makes, or how important it is if the Fed only cuts four or five times compared to the more ambitious market expectations, market outcomes have seem linked to the expectations for monetary policy.
There are plenty of factors that change the outlook in both directions — a continued rally in the stock market might worry the Fed about more inflation in the pipeline, as could an acceleration in geopolitical tensions and stronger-than-expected economic growth.
“By keeping the potential alive for inflation to turn up, these economic and geopolitical developments could put upward pressure on both short-term rates and long-term yields,” Komal Sri-Kumar, president of Sri-Kumar Global Strategies, said Saturday in his weekly market note.
“Could the Federal Reserve be forced to raise the Federal Funds rate as its next move rather than cut it?” he added. “An intriguing thought. Don’t be surprised if there is more discussion along these lines in coming months.” More