Economic Indicators - The dollar index (DXY00) fell by -0.42% due to a stock rally that reduced liquidity demand for the dollar and euro strength following eased European tensions [1] - US weekly initial unemployment claims rose by +1,000 to 200,000, indicating a stronger labor market than the expected 209,000 [2] - Q3 GDP was revised upward by 0.1 to 4.4% (quarter-over-quarter annualized), surpassing expectations of no change at 4.3% [3] - November personal spending increased by +0.5% month-over-month, aligning with expectations, while personal income rose by +0.3% month-over-month, below the expected +0.4% [3] - The November core PCE price index rose by +0.2% month-over-month and +2.8% year-over-year, meeting expectations [3] Market Reactions - The euro (EUR/USD) rose by +0.54% amid dollar weakness, supported by President Trump's decision to refrain from imposing tariffs on European nations opposing his Greenland acquisition efforts [7] - The Eurozone January consumer confidence index rose more than expected to an 11-month high, contributing to the euro's gains [7] Federal Reserve and Interest Rates - The Federal Open Market Committee (FOMC) is expected to cut interest rates by about -50 basis points in 2026, while the Bank of Japan (BOJ) is anticipated to raise rates by +25 basis points in the same year [5] - The dollar is under pressure as the Fed increases liquidity in the financial system, having started purchasing $40 billion a month in T-bills since mid-December [6] - Concerns exist regarding President Trump's potential appointment of a dovish Fed Chair, which could negatively impact the dollar [6]

Inflation remains a hot topic, directly impacting everything from your grocery bill to interest rates. As of the latest data, two key inflation gauges — the Personal Consumption Expenditures (PCE) Price Index and the Consumer Price Index (CPI) — show that prices are still above the Federal Reserve's 2% target, with the core PCE at 2.8% and core CPI at 2.6%. Note: PCE data is through November 2025 and CPI data is through December 2025. The Fed's Preferred Inflation Gauge The Fed is on record as using PCE dat ...

Inflation Data - Consumer prices rose 2.8% in November from a year earlier, up from a 2.7% annual pace in October, indicating persistent inflationary pressures [1][5] - Core prices, excluding food and energy, also increased by 2.8% year-over-year in November, slightly higher than October's 2.7% [1][4] Consumer Spending - Consumer spending climbed 0.5% in November from the previous month, suggesting a healthy economic growth pace in the final quarter of the year [2] - The economy expanded at a robust 4.4% annual rate in the July-September quarter, marking the fastest growth in two years [6] Federal Reserve Implications - The latest figures suggest that the Federal Reserve is less likely to reduce its key interest rate in the upcoming meeting, as the economy shows solid footing despite a cooling labor market [3][7] - Economists believe there is little urgency for the Fed to cut rates if growth remains strong and inflation continues above target levels [4]

What’s curious is that bond investors don’t appear to share these concerns. In the world’s largest public debt market, U.S. Treasury yields have been falling at the short end. At the long end of the curve, yields have been stable even after the recent sell-off in Japanese government bonds (Figure 4). While it’s understandable that short-term yields are falling, given the pressure on the Federal Reserve (Fed) to cut rates in the face of softening core inflation and weak employment growth, it is curious that ...

Group 1 - The Federal Reserve is likely to maintain interest rates steady next week, as indicated by the delayed reading of the Personal Consumption Expenditures (PCE) Index, which showed a year-over-year inflation increase of 2.8% excluding food and energy prices, and a month-over-month increase of 0.2% [1] - The Bureau of Economic Analysis combined October and November PCE data due to a government shutdown, which has created challenges in interpreting inflation trends [2] - Consumer spending remained robust in the fall, with economic growth in the third quarter revised upward to 4.4%, driven by stronger exports and business spending [3] Group 2 - Real consumption increased by 0.3% in both October and November, suggesting that the economy may not require additional policy support [4] - The Federal Reserve is expected to keep rates in the range of 3.5% to 3.75% after having cut rates three times in the previous fall [4]

Group 1 - Policymakers are expected to maintain the federal funds rate between 3.5% and 3.75% after the upcoming meeting, with traders anticipating one to two quarter-point reductions this year [3] - The core consumer price index rose by 0.2% in December and 2.6% for the entire year, matching a four-year low [4] - The Federal Reserve's preferred inflation measure is projected to fall below the 3% forecast for 2025, with the personal consumption expenditures price index (excluding food and energy) rising by 2.8% in November [6] Group 2 - President Trump has been advocating for more significant interest rate cuts, suggesting a reduction to as low as 1%, claiming that current rates hinder economic success [5] - The Beige Book report indicates moderate price growth across most of the Fed's districts, with only two districts reporting slight price increases [5][6] - Economic analysts expect inflation to continue to undershoot the Federal Open Market Committee's expectations this year due to low tariff revenues and signs of slowing wage growth [6]

Core Insights - Inflation improved in October 2025, with annual inflation at 2.7%, before rising to 2.8% in November, aligning with Wall Street's expectations [1][2] - The Federal Reserve's preferred inflation measure, the core PCE price index, showed a similar trend, with core PCE at 2.8% for September and matching estimates for October and November [2] Economic Indicators - The Federal Reserve is expected to conclude its policymaking meeting on January 28, with only a 5% chance of interest rate cuts in the upcoming vote, following a reduction to between 3.5% and 3.75% in December [3] - Fed Chair Jerome Powell indicated a likely pause on further cuts, emphasizing a "wait and see" approach regarding economic developments [3] Contextual Background - President Donald Trump claimed significant cooling of inflation, stating there was "virtually no inflation" and that he had "defeated" inflation over the past year [4] - The Federal Reserve aims for a 2% annual inflation rate, which has been exceeded for 57 consecutive months, raising concerns about the labor market and the impact of high inflation on lower- and middle-income Americans [4]

Economic Indicators - The dollar index (DXY00) is down by -0.28%, with a stock rally reducing liquidity demand for the dollar [1] - US Q3 GDP was revised upward by 0.1 to 4.4% (q/q annualized), exceeding expectations of no change at 4.3% [2] - US weekly initial unemployment claims rose by +1,000 to 200,000, indicating a stronger labor market than the expected 209,000 [1] - US Nov personal spending increased by +0.5% m/m, aligning with expectations, while personal income rose by +0.3% m/m, below the expected +0.4% [2] - The US Nov core PCE price index rose by +0.2% m/m and +2.8% y/y, meeting expectations [2] Monetary Policy and Market Reactions - The Federal Open Market Committee (FOMC) is anticipated to cut interest rates by about -50 bp in 2026, contributing to dollar weakness [4] - The Fed has begun purchasing $40 billion a month in T-bills, increasing liquidity in the financial system, which is also pressuring the dollar [5] - Markets are pricing in a 5% chance of a -25 bp rate cut at the FOMC's next meeting on January 27-28 [3] Currency Movements - The euro (EUR/USD) is up by +0.34%, benefiting from dollar weakness and support from President Trump's decision to refrain from imposing tariffs on European nations [6] - The Eurozone Jan consumer confidence index rose more than expected to an 11-month high, further supporting the euro [6]

Core Insights - US consumer spending, adjusted for inflation, increased by 0.3% in November for the second consecutive month [1] - The core personal consumption expenditures price index, which is the Federal Reserve's preferred measure of underlying inflation, rose by 0.2% in November compared to the previous month and by 2.8% year-over-year [1]

Core Viewpoint - The article discusses the current state of inflation and its implications for the economy, highlighting the challenges faced by consumers and businesses due to rising prices [1]. Group 1: Inflation Trends - Inflation rates have been increasing, impacting various sectors and consumer spending patterns [1]. - The article notes that certain commodities have seen significant price hikes, contributing to overall inflation [1]. Group 2: Economic Impact - Rising inflation is leading to increased costs for businesses, which may affect profit margins and investment decisions [1]. - Consumers are feeling the pinch as their purchasing power diminishes, leading to potential shifts in spending behavior [1].