Summary
United States: The Great Divergence
- Incoming economic data continue to shed light on how tighter monetary policy is placing unequal pressure across economic sectors. Interest rate sensitive segments like manufacturing and commercial construction remain under disproportionate strain, while the labor market appears to be only slowly moderating.
- Next week: NFIB Small Business Optimism (Tue.), CPI (Thu.), Monthly Treasury Statement (Thu.)
International: Ebbing Eurozone Inflation Suggests European Central Bank Edging Closer to Easing
- There was some mixed news from the Eurozone December CPI as headline inflation jumped to 2.9% year-over-year, but core inflation eased further to 3.4%. As long as Eurozone growth remains weak and the pace of price increases subdued, we believe the ECB will be comfortable delivering a rate cut at its April meeting.
- Next week: Mexico CPI (Tue.), Japan Labor Cash Earnings (Wed.), U.K. Monthly GDP (Fri.)
Interest Rate Watch: Wait a Minute
- The minutes from the FOMC’s mid-December meeting suggest the committee aims to remain restrictive, though it acknowledges it may be cutting rates this year should recent progress on inflation continue. Despite market yearning for cuts, there was no large debate around when to start lowering rates.
Credit Market Insights: Index Points to Looser-Than-Average Financial Conditions
- The Adjusted National Financial Conditions Index (ANFCI), a tool used by the Chicago Federal Reserve to assess financial conditions conditional on growth in economic activity and inflation, dropped to -0.51 the last week of December, suggesting looser-than-average financial conditions.
Topic of the Week: Population Growth Returns to Pre-Pandemic Patterns in 2023
- New 2023 population estimates from the Census Bureau reveal the U.S. population grew by 0.5% between July 2022 and July 2023, translating to about 1.6 million new residents, the largest annual population gain since 2018. Overall, lower mortality and rebounding immigration point to population growth returning to pre-pandemic patterns.
