Investors are bracing for a busy Wednesday. The Federal Open Market Committee (FOMC) will deliver its final rate decision of the year, and CPI data and Lululemon earnings are also on tap.
The Fed is expected to hold rates steady at the conclusion of its last policy-setting meeting of the year Wednesday. In addition, the FOMC will release an updated dot plot, policy statement, economic projections and Fed Chair Jay Powell will deliver a press conference.
Credit Suisse economist James Sweeney expects the dot plot will be the most interesting piece of new information at the conclusion of the two-day meeting. “We expect the median dot to show an unchanged rate projection of 1.625% in 2020, followed by one 25bps hike each in 2021 and 2022. This is more hawkish than rates market pricing of some easing. There is broad consensus on the FOMC around the near-term policy trajectory, so we expect little dispersion in dots for 2019-20. Risks are for higher medians in 2021 and 2022, as some Fed officials who were opposed to the rate cuts in the first place may choose to have rates return to the longer-run neutral more quickly. We expect the long-run median to stay unchanged at 2.5%,” Sweeney wrote in a note to clients Thursday.
He also noted that he expects no change to the committee’s economic projections regarding GDP and unemployment and that Powell is likely to reiterate that policy is in a wait-and-see mode for the time being. “Fed policy is likely to remain unchanged through the end of 2020. Downside risks remain, but a healthy labor market and strong consumer finances should prevent a more worrisome downturn in growth. Meanwhile, inflation is likely to rise towards the Fed’s 2.0% target by early next year, but we do not expect a sharp move higher,” Sweeney said.
Powell’s recent press conferences have been tightly scripted performances, according to JPMorgan. “We expect that will be the case next week. Powell will likely continue to characterize monetary policy as well-calibrated and “in a good place.” Any discussion of balance sheet or bank liquidity policy will likely be reserved for the opening statement of the press conference. In general, we expect that Powell will express a ‘whatever it takes’ attitude toward addressing year-end funding concerns.”
On the economic data front, investors will get the latest CPI data ahead of the market open. Economists polled by Bloomberg expect the consumer price index, excluding the volatile food and energy components, rose 0.2% in November.
“Many volatile factors suggest upside risk for November core inflation, likely reversing the recent softness in September and October,” Nomura wrote in a note Friday. “On net, we think this is consistent with the underlying inflation trend being essentially unchanged.”
Even as the Fed prefers the personal consumption expenditures price index as it method of measuring inflation, CPI data will still be close watched. “Core CPI has slowed in the past two months after some acceleration in the summer and remains below the FOMC’s target,” Credit Suisse said in a note Dec. 5. “The Fed has increasingly talked up a flexible inflation targeting approach as part of its monetary framework review. Combined with a high threshold to hiking rates, policy makers are likely more sensitive to misses than beats in inflation at the moment.”
After the market close, athleisure giant Lululemon (LULU) will release third quarter earnings. Analysts surveyed by Bloomberg expect Lululemon to report adjusted earnings of 94 cents per share on $899.44 million in revenue. Lululemon stock has been on a tear this year and surged a whopping 89%, outpacing the S&P 500’s (^GSPC) 27% gain in the same time period.
Same-store sales, a key metric for retailers, is expected to have jumped 13.8% during Q3. Lululemon’s digital initiatives, men’s clothing and international expansion are projected to have played a critical role during the quarter.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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