The Federal Reserve kept interest rates unchanged at its January meeting, and threw some cold water on the prospects for a March rate cut.  While acknowledging the progress made on inflation and a still buoyant U.S. economy, especially one with low unemployment, Chair Powell suggested the FOMC will remain data dependent as the year progresses and that their battle with inflation is not yet over.

A surprisingly weak reading (46.0 vs expectations for 48.0) from the Market News International Chicago Business Barometer PMI gave equity investors pause and bond investors hope that a March rate cut was in play.  A few hours later Chair Powell dashed those hopes.  The S&P Global Manufacturing PMI preliminary January reading came in at 50.3, consistent with other industrial PMI readings, while the Services sector by and large saw modestly higher (expansionary) readings.

Inflation data for December suggest price pressures continue to abate, although the Fed’s avowed target of 2% inflation has not yet been reached.  The Consumer Price Index came in at +0.3% MoM for December, and +3.4% YoY.  Ex Food & Energy, CPI came in at +0.3% MoM and +3.9% YoY.  On the wholesale front, PPI dropped -0.1% on the month and is only up a modest +1.0% year over year.  Core PPI was flat MoM and up +1.8% YoY.

The Labor Market remained strong in December with Unemployment registering just 3.7%, while the JOLTS Job Openings report rose back over 9 myn.  Weekly Initial Jobless Claims continue to hover in the 200k range, and have yet to signal a pending surge in unemployment.  Average Hourly Earnings ticked up +0.4% MoM in December and are now up by +4.1% year over year.

The U.S. economy appears to be in a bit of a Goldilocks position, despite the rise in interest rates over the past 18 months.  The Atlanta Fed GDPNow forecast suggests growth in 2024 of over 3.0%, while the market appears to be discounting 5+ interest rate cuts.  Despite rising geopolitical turmoil, investors appear sanguine with regard to equity market prospects through year-end.

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