All Eyes on Fed Meeting Today; U.S. Inflation Is Still Above Prepandemic Levels; Yellen Expects Soft Landing for American Economy

All Eyes on Fed Meeting Today; U.S. Inflation Is Still Above Prepandemic Levels; Yellen Expects Soft Landing for American Economy By James Christie

Good day. Federal Reserve policy makers look all but certain to leave rates on hold today, while maintaining their so-called bias to tighten. Investors will seek clues on when the central bank might shift its stance after recent inflation readings have tempered hopes for near-term rate cuts. The consumer-price index rose 3.1% in November from a year earlier, only a slight slowdown from October, according to data released yesterday by the Labor Department. Core prices, which strip out volatile food and energy components, rose 0.3% from the prior month, faster than would be consistent with the Fed's 2% inflation target. Year over year, core prices were up 4%, the same rate as in October. Meanwhile, Treasury Secretary and former Fed chair Janet Yellen, speaking at The Wall Street Journal's CEO Council Summit on Tuesday, said the U.S. economy is on path to taming inflation without a deep economic slowdown.

Now on to today's news and analysis.

Top News What to Expect From the Fed Meeting

Federal Reserve officials are set to hold interest rates steady this week at a 22-year high and will likely project cutting them next year.

Still, they won't declare an end to rate hikes this week, even though they are growing more convinced that they have done enough to bring inflation down.

Officials will release a new policy statement and economic and rate projections at the conclusion of their two-day meeting, Wednesday at 2 p.m. Eastern time. Fed Chair Jerome Powell's press conference at 2:30 p.m. will be heavily parsed for clues about when and why the central bank might shift its policy stance next year.

Pro Take: Jerome Powell Could Grapple With How to Frame the Economy By Bob Fernandez

Headline inflation ticked down in November, but remained above the Federal Reserve's target, according to Tuesday's consumer-price index report. Friday's employment numbers reflected a solid but not spectacular jobs market for the month.

The data paints a picture of a weaker economy-but one with potentially entrenched inflation and a clicking labor market. As such, and despite hopes on Wall Street, it is unlikely the Fed will call a definitive end to interest-rate increases or that Chair Jerome Powell will signal a timeline for rate cuts at the conclusion on Wednesday of the central bank's meeting. Read more .

U.S. Economy Inflation Edged Lower, But Still Too High for the Fed

Inflation has stabilized late this year at well below last year's high but still above prepandemic levels , tempering hopes for near-term Federal Reserve rate cuts and maintaining price and interest-rate pressures on weary Americans.

The consumer-price index rose 3.1% in November from a year earlier, a slight slowdown from October but above June's 3% reading, the Labor Department said Tuesday. Prices were up 0.1% from the prior month, stronger than the steady reading economists had expected.

Yellen Says U.S. Economy on Path to Soft Landing

"To me a soft landing is the economy continues to grow , the labor market remains strong and inflation comes down. And I believe that's the path we're on," Treasury Secretary Janet Yellen said Tuesday.

Why Biden's EV Tax Credit Could Become Hard to Claim

The Biden administration hopes to use generous tax credits to boost electric-vehicle sales and push automakers away from Chinese suppliers. A key material in EV batteries shows why it is proving hard to do both at once .

Why It Took 17 Years to Build 49 Housing Units in Los Angeles

A Los Angeles nonprofit was given government land in January 2007 to build a few dozen units of affordable housing. They're finally hoping to open the building next year after facing nearly every hurdle that California laws allow.

Key Developments Around the World Australian Government Forecasts Soft Landing for Economy

Australia's economy faces a tough year in 2024 with the government forecasting slowing economic growth, rising unemployment and a budget deficit of A$1.1 billion, an improvement on the deficit of A$13.9 billion projected in May.

Australia's Housing Costs Have Hit New Highs. Officials See Migrants as Part of the Problem. Chinese Leaders Vow to Step Up Support for Flagging Economy

Chinese leaders vowed to increase government spending and monetary support for the economy at an annual gathering, signaling they plan to stick with a measured approach to stimulus despite calls for bolder action.

Chinese Banks' Loan Issuance Rises but Misses Estimate Why Everyone Wants to Be Vietnam's Friend ADB Raises Growth Forecasts for Asia Despite Continued Headwinds Argentina Sharply Devalues its Peso Currency to Tame Inflation

Economy Minister Luis Caputo, unveiling the first economic measures since Javier Milei's inauguration as president Sunday, said the peso's official exchange rate will be set at 800 per U.S. dollar .

COP28 Nations Agree to Transition Away From Fossil Fuels

More than 190 governments at the United Nations climate conference approved an agreement on Wednesday calling for the world to transition away from fossil fuels, the result of all-night talks.

Financial Regulation Roundup Legal Hurdles Stack Up for Gensler's SEC

Gary Gensler is facing a growing number of legal challenges as the Securities and Exchange Commission chair moves forward with wide-reaching efforts to squeeze Wall Street for the benefit of investors and companies.

China Turns the Tables on Wall Street

China is upending how the international financial system handles debt crises in the developing world. Wall Street isn't happy. China can set its own rules because it has become the biggest lender to developing countries.

U.K. Sets Up New Office to Help Enforce Sanctions Against Russia

The Office of Trade Sanctions Implementation will oversee civil enforcement of trade sanctions and can issue civil monetary penalties on companies. The U.K. Department of Business and Trade intends to launch the OTSI next year.

Forward Guidance Wednesday (all times ET)

8:30 a.m.: U.S. producer-price index for November

2 p.m.: Federal Reserve interest-rate decision and economic projections

2:30 p.m.: FOMC press conference on interest-rate decision and economic projections

Thursday

7 a.m.: Bank of England interest-rate decision

8:15 a.m.: ECB interest-rate decision

8:30 a.m.: U.S. retail sales for November; U.S. weekly jobless claims

8:45 a.m.: ECB press conference on interest-rate decision

Research Falling Gas Prices Should Mitigate Inflation Fatigue

If current trends hold, falling energy prices should continue putting downward pressure on inflation, which is moderating but still has a way to go to get to the Federal Reserve's 2% target, according to Mark Hamrick, senior economic analyst at Bankrate. He writes in a note that the sharp drop in gas prices last month has Americans feeling less burned by inflation, though that improved sentiment will only stick if prices at the pump can stay down. Individuals and households are still acutely aware of how much higher prices are now compared with prepandemic levels, and the resulting dent in their purchasing power, Hamrick writes.

-Dean Seal

Commentary How Inflation Can Keep Falling

Prices for a lot of goods have been falling lately, a reflection of how the unwinding of supply-chain problems, and an apparent increase in promotional activity by retailers, are reducing inflation pressures , Justin Lahart writes.

Basis Points The U.S. federal budget deficit widened to $314 billion in November, up from $249 billion a year earlier, the Treasury Department said Tuesday. Economists surveyed by The Wall Street Journal had expected the deficit to increase to $290 billion. (MarketWatch) U.S. small business confidence continued to deteriorate in November as inflation and a tight labor market weighed on sentiment. The National Federation of Independent Business said Tuesday its small-business optimism index slipped from 90.7 in October to 90.6. Economists polled by The Wall Street Journal had expected a rise to 90.8. (Dow Jones Newswires) Pessimism among Canadian business executives reached a two-year high in the fourth quarter, and managers expect to put hiring plans on hold and sales to weaken further in early 2024, according to the joint Canadian Chamber of Commerce-Statistics Canada quarterly survey of business conditions. (DJN) The U.K. economy shrank a little more than expected in October, though likely not enough to convince the Bank of England to start cutting interest rates from their current elevated levels in the short term. Inflation in India ticked higher again in November, as the country's consumer price index rose by 5.55% on year, up from a 4.87% increase in October, according to government figures. (DJN) Sentiment among large Japanese manufacturers rose to the highest level since March 2022 during the three months to December, supported by a sharp recovery in the auto sector. Brazil's inflation accelerated slightly in November from the previous month and from a year earlier, driven mainly by food and beverage prices. Consumer prices increased 0.28% from October, the Brazilian Institute of Geography and Statistics said Tuesday, and prices from a year earlier increased 4.68%. In October, prices rose 0.24% from the previous month and 4.82% from a year earlier. (DJN) Mexico's industrial production had a positive start to the fourth quarter, posting an eighth consecutive month of growth. Output rose 0.6% in October from September in seasonally adjusted terms, the National Statistics Institute said Tuesday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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12-13-23 0715ET