The S&P 500 index rose 1.19% during the week as investors cheered Federal Reserve (Fed) Chairman Powell’s speech at the Brookings Institute after he signaled the Fed is ready to slow the pace of its interest rate hikes later this month. Powell also indicated that interest rates will remain higher for longer. The higher for longer statement is not new as he also passed along a similar message during his press conference following the November FOMC meeting. While the Fed is indicating it is ready to slow its pace of rate hikes, we are still looking at potentially three or even four more hikes on the horizon, albeit smaller hikes, which still leads us to a terminal rate of above 5%.
As for economic data. This week’s October PCE print provided some support for the Fed to slow down the pace of its rate hikes while also providing some hope that a soft landing is still possible. The core PCE index, which is Powell’s preferred measure of inflation, rose 0.2% in October, marking the second smallest monthly increase this year. Furthermore, the year-over-year core PCE reading came in at 5%, which was a decrease from 5.1% during the month prior. Adding to the promising news was that personal spending rose 0.5% in October, the most since the start of the year.
This week also provided us with the November nonfarm payroll report. Nonfarm payrolls increased 263,000, which was more than forecasts, while wages surged 0.6%, marking its steepest increase since January. This jobs report continues to show that the labor market remains very tight and higher wages will continue to be inflationary. This will also make it harder for the Fed to slow the pace of its interest rate hikes or even pause them.
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