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The Federal Reserve is expected to respond to persistently high inflation by raising interest rates by half a point on Wednesday. This will be the seventh and final painful rise of the year, albeit smaller than the last four historically high three-quarter point rises.
But the main event at the December meeting will be the much-anticipated summary of the Federal Reserve’s economic forecasts and what is colloquially known as the scatter chart. Investors will be watching these forecasts closely for clues on the path of rate hikes in the new year and beyond. They fear they will embark on a more aggressive monetary tightening trajectory, suggesting more rate hikes are on the cards next year.
What’s happening: At the end of this week’s two-day Federal Reserve meeting, the central bank will release its economic outlook. This forecast, which is updated four times a year, includes a chart that presents a series of points showing where each of the Fed’s 19 leaders expect interest rates to go going forward.
Former Fed Chairman Ben Bernanke first created the dot plot in 2012, mainly to reassure the public that Fed officials planned to keep interest rates low for the time being. Now the opposite is the case, the dots have become a signal that interest rates will remain high going forward – spooking investors and Fed watchers alike.
The problem is that it’s difficult to predict what the future will actually bring. When economic data changes, so do the Fed’s forecasts.
Federal Reserve Chair Jerome Powell warned last year that “the dots are not a good indicator of future interest rate moves” and that they should be taken “with a big, big grain of salt.” But that doesn’t stop investors from reading into it.
Dot Plot Madness: The dot-plot release could weigh on market sentiment this week even as investors cheer an easing of rate hikes.
“We think markets are overly optimistic on rates after the first quarter and we expect Powell to adopt a more aggressive tone and the dots to show higher rates for a longer period of time than what futures markets are currently suggesting is priced in. Cornerstone Wealth Chief Investment Officer Cliff Hodge wrote in a recent statement. “So to speak, a ‘hawkish’ step-down.”
The question is how big the jump in points will be. As recently as December 2021, the Fed only expected rates to end at around 0.9% this year.
In a note Monday, analysts at Goldman Sachs said they expect the federal fund rates midpoint “point” to rise to a new high of 5% to 5.25%, up from 4.5% to 4.75 % in September. That would mean Fed officials expect to hike rates half a percent more than three months ago when the conspiracy was last made public.
What else: Wednesday will also bring the Fed’s latest forecasts for the unemployment rate and gross domestic product (GDP) growth. These numbers will reveal whether Fed officials think a recession is likely and what their pain tolerance is as they continue the fight to bring down persistent inflation.
Economists at EY-Parthenon believe real GDP growth forecasts are likely to be revised down to around 0% from 1.2% in the fourth quarter of 2023. Forecasts for the unemployment rate, they say, are likely to approach 5% (up from 4.4% in the September update).
The Federal Reserve will announce its rate hike decision at 2 p.m. Wednesday, followed by a press conference with Powell at 2:30 p.m
Up to 100,000 members of the Royal College of Nursing will march across England, Wales and Northern Ireland on Thursday in the first of two strike days this month to protest poor wages and working conditions. They plan to go out again on December 20, reports my colleague Anna Cooban.
It is the first time in its 106-year history that the RCN – the UK’s largest nurses’ union – is on strike in England. The action was prompted by a cost-of-living crisis that has severely reduced the purchasing power of nurses nearly three years after the start of a pandemic that has left many stretched to the limit.
“It’s pretty unprecedented,” Billy Palmer, a senior fellow at Nuffield Trust, a health research firm, told CNN. While small groups of caregivers have previously left, the country’s National Health Service “has not seen anything of this magnitude until now,” he added.
This is partly because the RCN has had a ‘no strike’ policy for most of its history. In 1995, the union changed its rules, allowing strikes as long as they didn’t affect patient care.
“Patient safety is always paramount,” the RCN says on its website, adding that some nurses would continue to work during the strike. The RCN has promised to maintain essential services, including chemotherapy and dialysis treatments, during this month’s disruptions.
The nurses join hundreds of thousands of other British workers who are striking this December, including rail workers, postal workers and ambulance drivers. At the heart of these disputes is pay, which is failing to keep up with inflation, which hit a 41-year high of 11.1% in October.
It is the broadest wave of industrial unrest since the infamous “Winter of Discontent” in the late 1970s, when large numbers of workers, from truck drivers to gravediggers, went on strike.
The chaos has prompted Prime Minister Rishi Sunak to warn that “tough” new legislation curbing strike action is on the way.
Tesla CEO Elon Musk has said multiple times since 2015 that Tesla cars would be fully self-driving in two years or less. But years after his self-imposed deadlines passed, it still hasn’t happened. Even if a Tesla car comes with a $15,000 tech package that’s literally called “Full Self Driving Capability,” it can’t actually drive itself, reports my colleague Peter Valdes-Dapena.
Now Tesla’s lawyers argue that while the company hasn’t met those lofty goals, that doesn’t mean it has continued to scam, as alleged in a class-action lawsuit filed in September.
“The mere failure to meet a long-term, ambitious goal is not fraud,” Tesla’s attorneys wrote in a Nov. 28 court filing, calling for the lawsuit to be dismissed.
The lawsuit cited several times when Musk and others at Tesla had stated that the cars would be fully self-driving within a year or two thanks to software updates. For example, in a 2016 tweet, Musk stated that a Tesla car could drive itself across the United States “by next year,” the suit said.
The lawsuit, filed by California firm Cotchett, Pitre & McCarthy, also cited numerous instances of accidents involving Tesla’s driver-assistance technology.
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