One Final Inflation Reading

Whether we like it or not, the Fed’s decisions will have an impact on crypto prices next week. So, let’s recap today’s economic data, as it included the last inflation reading before the Fed makes a decision on rates.

The Federal Reserve’s preferred inflation metric came in better than expected in December, continuing the disinflation trend. 🔻

The personal consumption expenditures (PCE) price index rose 0.1%, matching November’s gain. The 5% YoY increase fell from November’s 5.5% advance to its smallest YoY gain since September 2021. Core PCE, which excludes food and energy prices, rose 0.3% MoM and 4.4% YoY, registering its smallest gain since October 2021. 🌡️

Disinflation continues, but core inflation remains well above the Fed’s 2% long-term target. As a result, many expect another 25 bp hike at next week’s meeting and potentially another in March before the Fed pauses to allow observe how higher rates impact the economy.

The other economic data that’s been coming out also supports this view. For example, let’s look at consumer incomes and spending.

U.S. consumer spending fell 0.2% in December, its second-straight monthly decline. That’s because November’s number was revised lower to a 0.1% loss. Meanwhile, wage growth was 0.3%, matching November’s number. Real disposable income increased by 0.2%, and the savings rate hit a seven-month high of 3.4%. 💸

Consumer sentiment remains historically low. However, it recently began to tick up on lower gasoline prices and inflation expectations. With that said, concerns over the economy remain, with many consumers stepping up their savings to prepare for a potential recession. 

And finally, let’s touch on housing. In December, U.S. pending home sales posted their first gain in seven months. The index rose 2.5% MoM but was still down 33.8% YoY. With mortgage rates pulling back and recession fears moderating, analysts expect the transaction trough is likely behind us. As we saw yesterday, new home sales rose for the third straight month in December. 🏘️

Labor news typically involves layoffs, but today we heard Boeing is set to hire 10,00 workers in 2023 as it ramps up its production.

CNBC’s Kelly Evans makes several interesting points about seemingly positive GDP data. Definitely worth a read. 👍

Overall, crypto and other risk assets sure seem optimistic about all this. We’ll have to wait and see if the Fed plays ball next week. 🤷

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