Jan 3 (Reuters) -
Federal Reserve officials project the U.S. central bank will cut its benchmark overnight interest rate during 2024, but the timing and pace of the reductions in borrowing costs will depend heavily on upcoming inflation and jobs data.
The Fed will hold its next policy meeting on Jan. 30-31, and while the central bank is expected to maintain its policy rate in the current 5.25%-5.50% range, data in the meantime could bring the prospects of rate cuts into better focus.
This year begins with a rush of major readings on the jobs market, consumer spending and inflation. Here is a guide to some of the numbers shaping the policy debate:
JOB OPENINGS (Released Jan. 3, next release Jan. 30):
Fed Chair Jerome Powell keeps a close eye on the U.S. Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but in November remained close to 1.4-to-1, still above the 1.2-to-1 level seen before the health crisis. Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels.
INFLATION (PCE released Dec. 22; next release CPI, Jan. 11):
Annual inflation by the Fed's preferred personal consumption expenditures price index fell to 2.6% in November and prices on a monthly basis declined for the first time since April 2020. The "core" index excluding food and energy prices also declined to 3.2%, the lowest that key gauge of trend inflation has been since April 2021.
Fed officials at their final policy meeting of 2023 forecast continued improvement in both measures this year.
Another measure, the consumer price index (CPI), declined to 3.1% on a year-on-year basis in November while the core rate held steady at 4.0%. Annualized measures of the monthly rate over the last few months, however, show these gauges continuing to decline.
RETAIL SALES (Released Dec. 14; next release Jan. 17):
Retail sales rose 0.3% in November, another in the series of "upside surprises" the economy delivered over the course of 2023. The "core" sales reading, which strips out gasoline, autos, building materials and food services, and more closely aligns with estimates of economic growth, also outpaced forecasts to come in at 0.4%, in the latest sign of the resilience of the U.S. consumer. On a trend basis, consumer spending rates are slowing in a way the Fed is hoping to see as it watches for signs the aggressive rate hikes it has delivered have begun to trim overall demand for goods and services.
EMPLOYMENT (Released Dec. 8, next release Jan. 5):
Job growth in November jumped to 199,000 from 150,000 in the prior month and the unemployment rate fell to 3.7% from 3.9%.
Even with the end of labor strikes involving about 40,000 workers, the latest employment report showed continued steady job gains. Alongside improved labor supply, with the number of available workers up more than half a million for the month, the report is consistent with the Fed's view of an economy that can continue growing while inflation also ebbs.
The pace of annual wage growth also continued a slow decline, though the reported 4.0% annual pace remains higher than many Fed officials feel is consistent with price stability.
(Reporting by Dan Burns, Howard Schneider and Ann Saphir; Editing by Paul Simao)
