The Line: The Fed Does Nothing, and We Couldn't Be Happier

The Line: The Fed Does Nothing, and We Couldn't Be Happier

  
Brown Harris Stevens Sunday, December 17, 2023 2 Min Read

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

It was a very busy week for economic data, so welcome to yet another bullet-point edition of The Line.

The Fed Does Nothing, and We Couldn't Be Happier

For the third straight meeting, the Federal Reserve left short-term rates unchanged.

Here’s what else you need to know:

  • They are done hiking rates.
  • They expect to cut rates three times in 2024, four times in 2025, and three times in 2026.
  • They do not expect a recession next year.
  • There is no direct relationship between the Fed’s rate changes and 30-year mortgage rates.
  • The stock market absolutely loved what the Fed said, with the Dow reaching an all-time high.

Inflation Up 3.1% From a Year Ago

  • The consumer price index ticked up 0.1% in November, and it is 3.1% higher than a year ago. This data was pretty close to expectations.
  • A 2.3% decline in energy prices last month kept inflation from being higher. 
  • Core CPI—which excludes food and energy prices—rose 0.3% last month and was up 4% from November 2022.
  • Core inflation is more important than the headline number, as it typically takes longer to come down.
  • The biggest contributor to core inflation remains housing prices, which are up 6.5% over the past year.
  • Inflation continues to move in the right direction, but remains above the Fed’s 2% target.

Mortgage Rates Fall Below 7%

  • The average 30-year conforming mortgage fell to 6.95% this week, its lowest level since August.
  • Mortgage rates are also moving in the right direction, and they should continue to drift lower next year as the economy cools further.

Retail Sales Rose More Than Expected in November

  • Retail sales were up 0.3% last month, beating the Dow Jones estimate of a 0.1% decline.
  • Remember that retail sales are not adjusted for inflation, so the “real” increase is a bit lower than that.
  • The biggest increase in sales last month was in restaurants and bars (+1.6%), while lower prices brought sales down 2.9% at gas stations.
  • Consumers continue to spend despite the depletion of the excess savings accumulated during the pandemic, and a record $1 trillion credit card debt.

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