With November’s CPI data release came a brief rally in U.S. equities, though the excitement quickly subsided. The S&P fell for four successive days following the rally, and other indices followed suit.
On Tuesday, two of the biggest Wall Street bank executives expressed pessimism about the economy next year as inflation hits consumer demand. Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that Bank of America’s research shows “negative growth” in the first part of 2023, but he added that the contraction will likely be “mild.” Goldman Sachs CEO David Solomon told Bloomberg that he sees economic growth slowing, smaller bonuses and even possible job cuts on the horizon.
Despite this, economic data readings have pointed to continued resilience in different parts of the economy, prompting intense speculation around the risk that the Federal Reserve will continue to raise interest rates throughout next year before making their pivot to a more dovish stance. Fed officials, including Chair Jerome Powell, have largely suggested the central bank will downshift to a half-point (50bps) move at their meeting next week after an unprecedented four consecutive 75-basis-point increases. However, last week’s employment report showed strong job gains and robust wage growth, the opposite of what the Fed would like to see in its battle against inflation.
The outlook for the economy next year remains uncertain, and it will be important to monitor developments closely. Analysts are waiting to see how the Fed responds to the recent employment data, and whether it will continue to remain hawkish.
