Economy

Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%.
Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month.
Initial claims for unemployment insurance totaled a seasonally adjusted 202,000, lower than the 220,000 estimate.

Consumers showed unexpected strength in November, giving a solid start to the holiday season as inflation showed signs of continued easing.
Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%, the Commerce Department reported Thursday. The total is adjusted for seasonal factors but not inflation.

Excluding autos, sales rose 0.2%, also better than the forecast for no change. Stripping out autos and gas, sales rose 0.6%.
With the consumer price index up 0.1% on a monthly basis in November, the retail sales number shows consumers more than keeping up with the pace of price increases.
On a year-over-year basis, sales accelerated 4.1%, compared with a headline CPI rate of 3.1%. The inflation rate is still above the Federal Reserve’s 2% target but is well below its peak above 9% in mid-2022.
“The rebound in retail sales in November provides further illustration that the continued rapid decline in inflation is not coming at the cost of significantly weaker economic growth,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month. Gas station sales were off 9.4% on a 12-month basis.

That weakness was offset by an increase of 1.6% at bars and restaurants, a 1.3% gain at sporting goods, hobby, book and music stores, and a 1% increase at online retailers.
The so-called control group of sales, which excludes auto dealers, building materials retailers, gas stations, office supply stores, mobile homes and tobacco stores and feeds into calculations for gross domestic product, increased 0.4%.
In other economic news Thursday, the pace of layoffs slowed sharply last week.
Initial claims for unemployment insurance totaled a seasonally adjusted 202,000 for the week ended Dec. 9, a decline of 19,000 from the previous week and the lowest total since mid-October, according to the Labor Department. Economists had been looking for 220,000.
Both reports come the day after the Federal Reserve indicated that enough progress has been made in the inflation fight to start lowering interest rates next year. According to projections following the policy meeting of the Federal Open Market Committee, central bank officials expect to cut about 0.75 percentage point off short-term borrowing rates in 2024.
Though Fed officials expect economic growth to slow considerably in the year ahead, they do not foresee a recession.
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The European Central Bank has signalled it still has “work to be done” to tame price pressures after leaving interest rates unchanged, even as it cut its inflation forecasts for this year and 2024.ECB president Christine Lagarde pushed back against market expectations for it to cut rates as early as March, saying “we should absolutely not lower our guard” against inflationary pressures. The central bank’s decision on Thursday came as investors ramped up their bets that major central banks are getting closer to lowering borrowing costs, following signals from US Federal Reserve officials that they expect to cut rates more aggressively than previously planned next year.After the ECB maintained its benchmark deposit rate at its highest-ever level of 4 per cent for the second consecutive meeting, policymakers repeated their determination to keep borrowing costs at “sufficiently restrictive levels for as long as necessary”.The central bank forecast consumer price growth would slow to its 2 per cent target within the next three years — clearing a key hurdle for them to consider cutting rates. But Lagarde said policymakers would be “a little bit more severe” and aim to hit that milestone by 2025.The ECB said it expected headline inflation to average 5.4 per cent in 2023, 2.7 per cent in 2024, 2.1 per cent in 2025 and 1.9 per cent in 2026, a “downward revision” for 2023 and 2024 from September’s projections.The ECB also announced a change to its remaining bond-buying programme, bowing to calls from hawkish members of its governing council to stop purchases earlier than planned. The central bank would reduce the reinvestments of maturing securities in the €1.7tn portfolio it started buying in response to the coronavirus pandemic from the second half of next year, instead of continuing them until the end of 2024. The reinvestments would be cut by €7.5bn a month from July before ending completely at the end of next year.The euro reached a two-week high after the ECB decision, trading 0.9 per cent higher against the dollar at $1.0971.Carsten Brzeski, an economist at ING, said the ECB had offered only “a very small shift towards dovishness” by ditching its previous observation that eurozone inflation was expected to remain “too high for too long”.German government bond yields — a benchmark for the eurozone — nudged higher straight after Thursday’s meeting to 2.53 per cent but remained 0.12 percentage points lower on the day.Swaps markets continue to price in six quarter-point ECB rate cuts next year.Lagarde, who told reporters she was recovering from Covid-19 but was no longer infectious, said the governing council “did not discuss rate cuts at all”, adding that “between hike and cut there is a whole plateau, a whole beach of hold”. Inflation in the 20-country single currency bloc slowed to an annual rate of 2.4 per cent in November, its lowest level for more than two years, fuelling market bets that the ECB will begin cutting borrowing costs as early as next March.Economists have been cutting their eurozone growth forecasts after weak recent data and signs that governments will reduce spending — all of which is likely to cool price pressures.Reflecting the bloc’s weaker outlook, the ECB trimmed its growth forecasts for this year from 0.7 per cent to 0.6 per cent and for next year from 1 per cent to 0.8 per cent. It left its 2025 growth forecast at 1.5 per cent and predicted a similar outcome for 2026.“The risks to growth remain tilted to the downside,” said Lagarde.After bond markets rallied in response to the Fed’s announcement late on Wednesday, traders in swaps markets were pricing in at least six quarter-point rate cuts for both the Fed and the ECB next year and five such moves by the Bank of England.Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said: “If the Fed does cut earlier and faster, it’s going to be very difficult for the ECB to hold on to their position.” The BoE earlier kept its bank rate unchanged at 5.25 per cent, warning that “key indicators of UK inflation remain elevated”, leaving the option open to raise rates further and saying its policy “is likely to need to be restrictive for an extended period of time”. This followed a signal from the Swiss central bank that it was nearing a potential rate cut by dropping its insistence that a further tightening of policy “may become necessary”. However, Norway’s central bank bucked the dovish trend by announcing a quarter-percentage point rate rise. More

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LONDON (Reuters) – The Bank of England stuck to its guns on Thursday and said British interest rates needed to stay high for “an extended period”, a day after the U.S. Federal Reserve signalled it would cut U.S. interest rates in 2024.The Monetary Policy Committee voted 6-3 to keep rates at a 15-year high of 5.25% and Governor Andrew Bailey said there was “still some way to go” in the fight against inflation, challenging investors who have bet increasingly on rate cuts. The three dissenting votes were in favour of raising borrowing costs and there was no talk of cutting them as the BoE remained concerned that inflation in Britain will prove stickier than in the United States and the euro zone.The central bank also largely shrugged off data showing a slowdown in wage growth and a 0.3% fall in gross domestic product in October – which raises the prospect of a recession in the run-up to a national election expected for 2024.Sterling jumped by more than half a cent against the U.S. dollar and British government bond prices pared some of the gains they had made in the wake of Wednesday’s Fed statement.”Successive rate rises have helped bring inflation down from over 10% in January to 4.6% in October. But there is still some way to go. We’ll … take the decisions necessary to get inflation all the way back to 2%,” Bailey said in a statement.Bailey later told broadcasters it was too early to speculate about cutting rates.The three policymakers who dissented wanted a further hike to 5.5%, and for most of the others the hold decision had been “finely balanced”, minutes of their policy discussion showed.Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America, said the BoE’s main message about rates staying high “effectively is a push-back to market pricing early cuts”.The statement “looks hawkish compared with the very dovish Fed yesterday”, he added.The BoE’s policy stance assumes a gradual fall in interest rates to 4.25% in three years’ time. An hour after its announcement, investors still saw rates dropping to that level before the end of next year. STANCE UNCHANGEDThe BoE’s main message is unchanged from November, when it forecast it would take two years to return inflation to target.Although inflation was likely to be slightly lower in the near term than the BoE expected last month, policymakers’ longer-term concerns remained.”Relative to developments in the United States and the euro area, measures of wage inflation were considerably higher in the United Kingdom and services price inflation had fallen back by less so far,” the BoE said.The BoE noted that bond yields had fallen “materially” and said it would take this into account in its next quarterly forecasts in February, raising the prospect that it could raise its forecasts for economic growth in 2024 which currently sit at zero.Furthermore, the announcement of tax cuts last month by finance minister Jeremy Hunt was likely to boost gross domestic product by a quarter of a percent over coming years, but have more limited inflation implications, the BoE added. The only BoE policymaker to have discussed the timing of a rate cut recently is Chief Economist Huw Pill who shortly after November’s decision said the market expectations then for a first rate cut next August “doesn’t seem totally unreasonable”.Two days later, Bailey said it was “really too early” to discuss when rates might be cut. More

ORLANDO, Florida (Reuters) -The Federal Reserve is about to embark on an interest rate-cutting journey next year, but what is striking about the 150 basis points of easing markets now expect is the relatively smooth path to get there rather than the destination itself.The history of policy cycles over the last 40 years shows that rates are often raised cautiously – the current inflation-busting campaign being the exception to the rule – but cut more quickly and aggressively.Policymakers are usually wary of “breaking something” – asset markets, the labor market, the economy – when raising rates, and are probably all too aware that something may already be broken by the time they are actually cutting rates.Of course, it is almost impossible to predict when a market, financial or economic shock might force the Fed to act boldly. But equally, it is hard to imagine the looming easing cycle will resemble the 25 basis points-per-meeting from March to December currently outlined by market pricing.That’s more reminiscent of the Alan Greenspan Fed’s “measured pace” rate hikes of 25 bps-per-meeting in the mid-2000s, or the 2016-18 tightening cycle of 25 bps every second meeting.The rate cuts that followed in 2007-08 and 2019-20, respectively, were anything but measured. That’s not to suggest another Global Financial Crisis or pandemic-led shutdown of the global economy is on the horizon. And although inflation continues to fall and inch closer to the Fed’s 2% goal, the last mile is proving to be the hardest. Indeed, Fed officials still don’t see inflation hitting 2% until 2026, although it will get mighty close in 2025, according to their revised projections released on Wednesday.What markets seized on most, however, was the Fed’s new 2024 median outlook for the fed funds rate of 4.6%, down 50 basis points from three months ago.Looked at another way, Fed officials have moved even further – their new end-2024 median forecast is a full 100 basis points lower than September’s end-2023 projection of 5.6%. SOFT LANDING?Eric Winograd, director of developed market research at AllianceBernstein (NYSE:AB), notes that the Fed’s new “dot plots” imply rates will be cut 75 basis points next year, then roughly by around 25 basis points per quarter through 2025 and 2026 until the long-run neutral level of 2.5% is reached.”That’s a smooth, gradual glide path to equilibrium; the sort of path that central banks always aim at but rarely hit,” Winograd reckons. “It is unlikely that the economy will decelerate as smoothly and painlessly as the Fed’s forecasts imply.”The fed funds target range is currently 5.35-5.50%, so it is worth noting that monetary policy would still be “restrictive” if rates are cut by 75 bps or even 150 bps, given that the Fed’s long-run “neutral” rate that neither stimulates nor slows growth or inflation is 2.5%.In his press conference, Fed Chair Jerome Powell refused to be drawn on the timing of any rate cuts, and insisted November’s presidential election will not influence the Fed in its actions.Analysts at TD Securities still expect the easing cycle to begin in June, although risks clearly point to the starting gun being fired earlier. Yet they predict 200 bps of cuts in 2024 as the economy tips into recession.Their total rate cut forecast for the year isn’t materially different from the 150 bps that rates futures are currently indicating. But the timing and size of the anticipated moves are, and much more in line with previous easing cycles.Once rate cuts start, moves of 50 bps or more are pretty common. The most obvious exception was the mid-1990s, when the economy managed that elusive “soft landing” and the Fed’s three rate cuts were only a quarter point each.What Powell and his colleagues wouldn’t give for a repeat. (The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Edmund Klamann) More

Biden’s signature Inflation Reduction Act (IRA) includes a provision to penalize drugmakers for charging prices that rise faster than inflation for people on Medicare, the government program for those age 65 and older and the disabled.For the last quarter of 2023, prices of 48 Medicare Part B drugs rose faster than inflation, according to the White House, which also said some big pharmaceutical companies raised prices of certain medications every quarter through the year. These drugs may be subject to inflation rebates in the first quarter of 2024 as a result of the IRA, which Biden, a Democrat, signed last year.In total, 64 drugs had prices that increased faster than inflation over the last four quarters, the White House said in a statement. Prices of some drugs such as Signifor, used to treat an endocrine disorder, have risen faster than inflation every quarter since the IRA’s rebate provision came into effect. The IRA aims to save $25 billion annually by 2031 by requiring drugmakers to negotiate the prices of selected expensive drugs with the U.S. Centers for Medicare and Medicaid Service, which oversees Medicare.The Biden administration last week announced it was setting new policy that will allow it to seize patents for medicines developed with government funding if it believes their prices are too high. More

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The Ifo, RWI and DIW institutes all cut their forecasts by between 0.3 and 0.6 percentage points from their previous expectations published in September. Ifo now expects Europe’s largest economy to grow by 0.9% next year instead of 1.4%, while RWI cut its forecast to 0.8% from 1.1% and DIW dropped its prediction to 0.6% from 1.2%.”Uncertainty is currently delaying the recovery, as it increases consumers’ propensity to save and reduces the willingness of companies and private households to invest,” said Ifo’s head of forecasts Timo Wollmershaeuser.For 2025, Ifo slightly raised its forecast, saying the economy is on the road to recovery as purchasing power returns, demand is set to recover and high interest rates retreat. DIW and RWI, on the other hand, revised down their 2025 outlooks. Uncertainty around the government’s finances abated somewhat on Wednesday after Germany’s coalition parties reached a deal that reduces the 2024 budget by cutting subsidies for activities which damage the climate, spending in some ministries and federal grants.Ifo president Clemens Fuest praised the agreement as a step in the right direction but said questions remain unanswered, particularly about whether enough investment can still take place. “The agreement on the 2024 budget is a lazy compromise and a huge missed opportunity to make Germany fit for the future again,” said DIW president Marcel Fratzscher.The DIW institute said budget cuts to the country’s climate and transformation fund, which is intended to assist companies with the costly transition to greener production, would dampen growth, by 0.3 percentage points in 2024 and 0.2 percentage points in 2025.($1 = 0.9271 euros) More