Inflation data, Fed meeting will set the table for 2023: What to know this week

Updated 8 min read

A highly-anticipated inflation reading and the Federal Reserve’s last policy decision of the year will serve as highlights during what should be the final week of major economic news in 2022.

On Tuesday, the closely-watched Consumer Price Index (CPI) for November may foretell how much higher rates could go in the coming year.

And on Wednesday afternoon, the Fed's latest monetary policy decision will almost certainly deliver to investors the seventh and final interest rate increase of 2022.

The government’s retail sales report out Thursday morning will add to a consequential week on Wall Street.

All of this coming as investors look to rebound after the S&P 500 and Dow suffered their worst weekly declines since late September.

Chair of the U.S. Federal Reserve Jerome Powell speaks at the Brookings Institution, November 30, 2022 in Washington, DC. (Photo by Drew Angerer/Getty Images) · (Drew Angerer via Getty Images)

Economists project headline CPI rose 0.3% last month, a marginal deceleration from the 0.4% increase seen in October, estimates compiled by Bloomberg show. On an annual basis, CPI likely rose 7.3% in November, down from the prior year-over-year reading of 7.7%.

Core CPI, which strips out the volatile food and energy components of the report and is closely tracked by the Fed, is expected to have risen 6.1% over the same month last year, slightly less than the 6.3% seen in October.

While a continued downtrend in inflation is expected thanks to falling energy prices, strategists at Bank of America emphasize the inflation problem for policymakers and the economy remains "under the hood," with a potential decline in core prices perhaps only the result of holiday discounting and a decline in used car prices. Meanwhile, shelter inflation is expected to remain sticky.

“We expect core services excluding shelter inflation, which is inextricably tied to wages and the labor market, to remain elevated,” the economics team at Bank of America led by Michael Gapen said.

On Wednesday, members of the Federal Open Market Committee (FOMC) are poised to lift rates by 50 basis points, a slowdown from the 0.75% increases delivered over the past four meetings.

Lighter than expected inflation data isn't expected to deter officials from raising their benchmark policy rate by the projected 0.50% at the conclusion of their meeting. The FOMC will announce its latest policy decision at 2:00 p.m. ET on Wednesday, as well as release updated economic projections, with Fed Chair Jerome Powell scheduled to hold a press conference beginning at 2:30 p.m. ET.

Powell is expected to continue to push back against the “pivot” narrative — or the view from investors the Fed may stop tightening financial conditions sooner than implied by its forecasts. But a positive surprise (read: lower) on the inflation front may stoke optimism around a policy shift that could overpower any hawkish messaging from Powell.

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