INFLATION
The Consumer Price Index (CPI) rose 0.2% in October. The core CPI, excluding food and energy, rose 0.3%. Year-over-year, consumer prices are up 2.6% while core CPI has risen 3.3%. Producer prices (PPI) were up 0.2% in October and are up 2.4% over the last twelve months.
Our Take: The Fed appears confident that inflation will moderate toward 2%, but it has remained stubbornly higher than that target and has recently been trending sideways. It is possible that rates are not currently as restrictive as the Fed believes. Despite this, the market is still pricing in an approximately 60% chance of a December rate cut.
THE FED
There was a fair amount of chatter from Federal Open Market Committee members this week with each providing their perspective on the restrictiveness of current policy and the path going forward. According to Minneapolis Fed President Neel Kashkari, inflation is headed down toward the Fed’s 2% target rate, but it is important to wait for additional data before making any decisions. St. Louis Fed President Alberto Musalem believes that monetary policy is well-positioned and that the Fed can “judiciously and patiently” evaluate incoming data when considering additional rate cuts. Dallas Fed Chair Lorie Logan and Chicago Fed Chair Austan Goolsbee both noted that while more cuts are likely, it is important to move at a slow pace and proceed with caution given the uncertainty of where the neutral rate is. Fed Chairman Jerome Powell said, “the economy is not sending any signals that we need to be in a hurry to lower rates.” He added the current strength of the economy gives the Fed the “ability to approach [its] decisions carefully.”
Our Take: Although there was nothing new in any of these statements, the markets reacted by lowering expectations of a rate cut in the December meeting to roughly 60%. Despite the market reaction, the Fed’s message has been consistent, and it remains focused on a careful, data-driven approach to policy normalization.
RETAIL SALES
Retail sales rose 0.4% in October, outpacing expectations for a 0.3% increase. September sales were revised higher, from 0.3% to 0.8%. The retail sales control group, which feeds GDP calculations, fell 0.1% but September control group sales were revised from 0.7% to 1.2%.
Our Take: October sales data may have been distorted by extreme weather and strikes but the general trend in retail sales is strong, indicating no meaningful slowdown in the economy.
MUNICIPALS
New York Governor Kathy Hochul announced this week that the New York City congestion pricing toll program will proceed, but with a lower fee. Instead of charging drivers $15 to enter the city at or below 60th Street, drivers will be charged $9. Hochul touted the lower toll amount that drivers will pay and indicated that the toll will generate approximately $15 billion for the Metropolitan Transportation Authority. Governor Hochul stated, “we have found a path to fund the MTA, reduce congestion and keep millions of dollars in the pockets of our commuters.”
Our Take: When Governor Hochul paused the congestion pricing plan last summer, she cited both inflation and financial pressures on working-class families as reasons for her decision. However, many believed that the halt was due to political pressures, as the toll was unpopular with constituents. Now that the election is over, many believe that the proposal is moving quickly to take effect while President Biden is in office, as President-Elect Trump has voiced his disapproval of the plan. Even though the fee is lower than the original proposed amount, the MTA is now poised to receive much-needed funding for maintenance and infrastructure upgrades.