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Markets seem to have taken this week’s positive economic data as the all-clear signal for the Federal Reserve to start cutting interest rates aggressively next year.

Indications that both consumer and wholesale inflation rates have eased considerably from their mid-2022 peaks sent traders into a frenzy, with the most recent indications on the CME Group’s FedWatch gauge pointing to a full percentage point of cuts by the end of 2024.

That may be at least a tad optimistic, particularly considering the cautious approach central bank officials have taken during their campaign to bring down prices.

“The case isn’t conclusively made yet,” said Lou Crandall, chief economist at Wrightson ICAP. “We’re making progress in that direction, but we haven’t gotten to the point where they’re going to say that the risk of leveling out at a level too far above target has gone away.”

This week has featured two important Labor Department reports, one showing that consumer prices in aggregate were unchanged in October, while another indicated that wholesale prices actually declined half a percent last month.

While the 12-month reading of the producer price index sank to 1.3%, the consumer price index was still at 3.2%. Core CPI also is still running at a 12-month rate of 4%. Moreover, the Atlanta Fed’s measure of “sticky” prices that don’t change as often as items such as gas, groceries and vehicle prices, showed inflation still climbing at a 4.9% yearly clip.

“We’re getting closer,” Crandall said. “The data we’ve gotten this week are consistent with what you would want to see as you move in that direction. But we haven’t reached the destination yet.”

In search of 2% inflation

The Fed’s “destination” is a place where inflation isn’t necessarily at its 2% annual goal but is showing “convincing” progress that it’s getting there.

“What we decided to do is maintain a policy rate and await further data. We want to see convincing evidence, really, that we have reached the appropriate level,” Fed Chair Jerome Powell said at his post-meeting news conference in September.

While Fed officials haven’t indicated how many months in a row it will take of easing inflation data to reach that conclusion, 12-month core CPI has fallen each month since April. The Fed prefers core inflation measures as a better gauge of long-run inflation trends.

Traders appear to have more certainty than Fed officials at this point.

Futures pricing Wednesday indicated no chance of additional hikes this cycle and the first quarter percentage point cut coming in May, followed by another in July, and likely two more before the end of 2024, according to the CME Group’s gauge of pricing in the fed funds futures market.

If correct, that would take the benchmark rate down to a target range of 4.25%-4.5% and would be twice as aggressive as the pace Fed officials penciled in back in September.

Markets, then, will watch with extra fervor how officials react at their next policy meeting on Dec. 12-13. In addition to a rate call, the meeting will see officials make quarterly updates to their “dot plot” of rate expectations, as well as forecasts for gross domestic product, unemployment and inflation.

But pricing of Fed actions can be volatile, and there are two more inflation reports ahead before that meeting. Wall Street could find it self disappointed in how the Fed views the near-term policy course.

“They’re not going to want to signal that now is the time to start talking about decreases in interest rates, even if fed funds futures already has that incorporated,” former Boston Fed President Eric Rosengren said Wednesday on CNBC’s “Squawk Box.”

Wholesale prices were flat in November, providing a leading indicator that inflation is easing, the Labor Department reported Wednesday.

The producer price index, which measures a broad range of prices on final demand items, was unchanged for the month, following a 0.4% decrease in October but less than the Dow Jones estimate for a 0.1% gain. On a year-over-year basis, headline PPI accelerated just 0.9%, after peaking above 11.5% in March 2022.

Excluding food and energy, the index also was unchanged against an estimate for a 0.2% increase. Excluding food, energy and trade services, PPI increased 0.1%, posting a sixth straight increase and good for a 12-month gain of 2.5%.

The release comes a day after the Labor Department said its consumer price index rose just 0.1% in November and 3.1% from a year ago. The PPI gauges the prices producers receive for what they produce while CPI measures what consumers pay and is considered a leading signal for prices in the pipeline.

Together, the easing inflation data, along with other economic signals, likely will give the Federal Reserve enough room to hold benchmark interest rates steady when its policy meeting concludes Wednesday.

At the wholesale level, indexes for both goods and services were unchanged, though there were some big swings within components.

Gasoline, for instance, fell 4.1% while chicken eggs soared 58.8%. The index for final demand energy fell 1.2%, offsetting increases of 0.6% for foods and 0.2% for goods less food and energy.

The Federal Reserve dialed back its inflation projections on Wednesday, seeing its favorite gauge falling to 2.4% in 2024.

The central bank also predicted that the core personal consumption expenditures price index will decline to 2.2% by 2025 and finally reach its 2% target in 2026. The gauge rose 3.5% in October on a year-over-year basis.

These new forecasts suggest a softer inflation picture in the next two years than that from the last update in September. The Fed had foreseen the core PCE hitting 2.6% in 2024 and 2.3% in 2025.

In the post-meeting statement released Wednesday, the Federal Open Market Committee said inflation has “eased over the past year” while maintaining its description of prices as “elevated.” 

While the public more closely watches the consumer price index as an inflation measure, the Fed prefers the core PCE reading. The former measure primarily looks at what goods and services cost, while the latter focuses on what people actually spend, adjusting for consumer behavior when prices fluctuate. Core CPI was at 4% in November while headline was at 3.1%.

Committee members also upgraded their forecast for gross domestic product. They now expect GDP to grow at a 2.6% annualized pace in 2023, a half percentage point increase from the last update in September.

Officials see GDP at 1.4% in 2024, roughly unchanged from the previous outlook. Projections for the unemployment rate were largely unchanged, at 3.8% in 2023 and rising to 4.1% in subsequent years.  

Dot plot

Projections released by the Fed showed the central bank would slash rates to a median 4.6% by the end of 2024, which would be three quarter-point reductions from the current targeted range between 5.25%-5.5%. 

The individual members of the FOMC indicate their expectations for rates in the following years in the “dot plot.”

Here are the Fed’s latest targets:

Consumers showed unexpected strength in November, giving a solid start to the holiday season as inflation showed signs of continued easing.

Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%, the Commerce Department reported Thursday. The total is adjusted for seasonal factors but not inflation.

Excluding autos, sales rose 0.2%, also better than the forecast for no change. Stripping out autos and gas, sales rose 0.6%.

With the consumer price index up 0.1% on a monthly basis in November, the retail sales number shows consumers more than keeping up with the pace of price increases.

On a year-over-year basis, sales accelerated 4.1%, compared with a headline CPI rate of 3.1%. The inflation rate is still above the Federal Reserve’s 2% target but is well below its peak above 9% in mid-2022.

“The rebound in retail sales in November provides further illustration that the continued rapid decline in inflation is not coming at the cost of significantly weaker economic growth,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month. Gas station sales were off 9.4% on a 12-month basis.

That weakness was offset by an increase of 1.6% at bars and restaurants, a 1.3% gain at sporting goods, hobby, book and music stores, and a 1% increase at online retailers.

The so-called control group of sales, which excludes auto dealers, building materials retailers, gas stations, office supply stores, mobile homes and tobacco stores and feeds into calculations for gross domestic product, increased 0.4%.

In other economic news Thursday, the pace of layoffs slowed sharply last week.

Initial claims for unemployment insurance totaled a seasonally adjusted 202,000 for the week ended Dec. 9, a decline of 19,000 from the previous week and the lowest total since mid-October, according to the Labor Department. Economists had been looking for 220,000.

Both reports come the day after the Federal Reserve indicated that enough progress has been made in the inflation fight to start lowering interest rates next year. According to projections following the policy meeting of the Federal Open Market Committee, central bank officials expect to cut about 0.75 percentage point off short-term borrowing rates in 2024.

Though Fed officials expect economic growth to slow considerably in the year ahead, they do not foresee a recession.

LONDON — The U.K. and Switzerland on Thursday signed a post-Brexit financial services deal designed to bring two of Europe’s largest banking centers closer together.

British Finance Minister Jeremy Hunt told CNBC that the “first-of-its-kind” deal was a win for post-Brexit Britain that “wouldn’t have been possible to sign” inside the European Union.

He added that the mutual recognition accord, dubbed the Bern Financial Services Agreement, would provide a “blueprint” for future deals with other countries.

“This is a new type of trade agreement that we can use as a model for future agreements that we have with other markets as well,” Hunt said during a news conference announcing the deal.

Hunt was in Bern, Switzerland, to sign the agreement with his Swiss counterpart, Karin Keller-Sutter, who said it would “boost the international competitiveness” of both markets over the long term.

The deal, which follows more than two years of negotiations, aims to streamline business ties between financial firms and wealthy individuals in the two markets, and improve cross-border access to a range of financial services sold by banks, insurers and asset managers.

It follows a so-called deference model, which allows firms to operate in the partner country while following just one set of regulations and without necessarily having to open a local base. As such, financial services providers and insurers will be able to offer certain cross-border activities in both Switzerland and the U.K.

The terms will also allow Swiss firms to serve wealthy individuals within the U.K., either locally or cross-border, replicating privileges currently available to British firms in Switzerland. Meanwhile, U.K. advisors will be permitted to “temporarily serve” wealthy clients locally in Switzerland without registering in the country.

Hunt described the plans as a “light-touch, progressive, future-leaning way of opening access,” which would provide a significant boost for the City of London. Hunt added that the deal could potentially be extended to include retail and sustainable finance in the future.

The deal will need to be approved by parliaments in both countries before entering into force next year. However, some commentators were optimistic that it would mark an improvement on the equivalence framework Britain 

A gauge the Federal Reserve uses for inflation rose slightly in November and edged closer to the central bank’s goal.

The core personal consumption expenditures price index, which excludes volatile food and energy prices, increased 0.1% for the month, and was up 3.2% from a year ago, the Commerce Department reported Friday.

Economists surveyed by Dow Jones had been expecting respective rises of 0.1% and 3.3%.

On a six-month basis, core PCE increased 1.9%, indicating that if current trends continue the Fed essentially has reached its goal.

“Adding in the further sharp slowdown in rent inflation still in the pipeline, it’s hard to see any credible reason why the annual inflation rate won’t also return to the 2% target over the coming months,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics.

Markets reacted little to the report, with Wall Street set for a mixed open Friday in its last session before the Christmas holiday.

Elsewhere in the report, consumer expenditures in November climbed 0.3% while income rose 0.4%, numbers that were in line with expectations and indicative that spending was continuing apace despite ongoing inflation pressures.

Including food and energy costs, so-called headline PCE actually fell 0.1% on the month and was up just 2.6% from a year ago, after peaking above 7% in mid-2022. That was the first monthly decline since April 2020, according to Fed data.

The 12-month numbers are significant in that both show inflation making continued progress toward the Fed’s 2% target.

“The Federal Open Market Committee is not yet ready to declare victory on inflation, but the outlook is much better than it was just a few months ago,” wrote Gus Faucher, chief economist at PNC Financial Services. “The slowing in core inflation opens the door for fed funds rate cuts in 2024; the timing will depend on core PCE numbers over the next few months.”

The Fed prefers PCE as an inflation measure over the more widely followed CPI as the former focuses more on what consumers actually spend rather than the latter’s measure of what goods and services cost. Though policymakers watch both measures, they are more concerned with core prices as a longer-run inflation gauge.

November’s report reflected a shift in consumer appetite, as prices for services increased 0.2% while goods slumped 0.7%. A 2.7% slide in energy prices and a 0.1% decrease in food helped hold back inflation for the month.

Much of the market’s focus lately has been on the Fed’s inflation view and what that will mean for interest rates.

For each of its last three meetings, the Federal Open Market Committee has held the line, keeping its benchmark overnight borrowing rate targeted between 5.25%-5.5%. At its meeting last week, the committee indicated it is done raising rates and expects to implement cuts totaling 0.75 percentage point in 2024. Markets expect the first rate reduction to happen in March.

Job openings tumbled in October to their lowest in 2½ years, a sign the historically tight labor market could be loosening.

Employment openings totaled a seasonally adjusted 8.73 million for the month, a decline of 617,000, or 6.6%, the Labor Department reported Tuesday. The number was well below the 9.4 million estimate from Dow Jones and the lowest since March 2021.

The decline in vacancies brought the ratio of openings to available workers down to 1.3 to 1, a level that only a few months ago was around 2 to 1 and is nearly inline with the pre-pandemic level of 1.2 to 1.

Federal Reserve policymakers watch the report, known as the Job Openings and Labor Turnover Survey, closely for signs of labor slack. The Fed has boosted interest rates dramatically since March 2022 in an effort to slow the labor market and cool inflation, and is contemplating its next policy move.

While job openings fell dramatically, total hires only nudged lower while layoffs and separations were modestly higher.

Quits, which are seen as a measure of worker confidence in the ability to change jobs and find another one easily, also were little changed. The quits rate had peaked around 3% of total employment in late 2021 into early 2022, during what briefly was known as the Great Resignation as workers left their old jobs in search of positions that paid more and offered better working conditions; it since has declined to 2.3%.

“This data certainly solidifies the Fed’s decision to keep rates unchanged while looking for signs of a pivot in the upcoming meeting next week,” said Tuan Nguyen, U.S. economist at RSM. “Besides inflation, job opening data, serving as a proxy for labor demand and wage pressure, has been the Fed’s top priority in recent times.”

Declines in job openings were widespread by industry.

The biggest sector decline was education and health services (-238,000), followed by financial activities (-217,000), leisure and hospitality (-136,000), and retail (-102,000).

The JOLTS data comes just a few days ahead of the Labor Department’s nonfarm payrolls count for November. Economists expect that report to show an increase of 190,000, an uptick from October’s 150,000, according to Dow Jones.

Fed officials have been targeting the red-hot jobs market as a specific area of concern in their battle to take inflation down from what had been a four-decade high last year. Seeing a decline in job openings likely will be welcome news to policymakers as it could mean that less labor demand could help bring the jobs market back in line from what had been a huge mismatch with supply.

The Fed holds its two-day policy meeting next week, with markets largely expecting the Federal Open Market Committee to leave interest rates unchanged. Traders in the fed funds futures market are pricing in rate cuts to begin in March on anticipation that inflation data will continue to show progress and as the central bank tries to fend off a potential slowdown or recession ahead.

In other economic news Tuesday, the ISM services index for November registered a reading of 52.7%, representing the share of companies reporting expansion versus contraction. The reading was nearly a full percentage point higher than October and slightly above the Dow Jones forecast for 52.4%.

Gains in the survey came from inventory sentiment, inventories and new export orders. Employment nudged higher to 50.7% while prices edged lower to 58.3%. A reading above 50% represents growth.

DUBAI, United Arab Emirates — Saudi Arabia announced a 30-year tax exemption package for foreign companies establishing their regional headquarters in the kingdom, the latest move in its aggressive campaign to attract international investment and headcount.

“The Ministry of Investment of Saudi Arabia, in coordination with the Ministry of Finance and the Zakat, Tax and Customs Authority today announced 30-year tax incentive package for The Regional Headquarters (RHQ) Program, to further streamline the process for multinational companies (MNCs) to establish their RHQ in Saudi Arabia,” the Saudi state press agency wrote in a statement Tuesday.

The offer includes a 0% corporate tax rate for 30 years, which will be applied for companies “from the day they obtained their RHQ license,” the statement read.

The program “aims to attract MNCs to set up their RHQ in Saudi Arabia and position the Kingdom as the leading commercial, industrial and investment hub for the MENA region, by offering a range of benefits and premium support services that complement the Kingdom’s globally competitive value proposition,” the statement added.

A controversial ultimatum

The kingdom grabbed investor attention and sparked controversy in February 2021 when it first announced its RHQ campaign, declaring that any foreign company that did not have its regional headquarters office in Saudi Arabia by the start of 2024 would be barred from doing business with state entities.

The news stunned investors and expat workers, many of whom saw the move as a shot at Dubai, the United Arab Emirates commercial capital that is home to the highest concentration of Middle East regional headquarters.

In October of this year, Saudi ministers made clear that the ultimatum still held firm: Foreign companies will need to base their regional headquarters in the kingdom by Jan. 1, 2024 or be barred from lucrative government contracts.

The U.S. economy should be able to avoid a recession next year — but a sharp pullback in consumer spending is among the biggest risks of that occurrence, according to economist Carl Weinberg.

“Consumers are just waking up to the fact that they’re financing their spending by running up their credit cards, and that the interest on those credit cards is over the top, out of control, off the hook right now,” the chief economist of High Frequency Economics told CNBC’s “Squawk Box Europe” on Wednesday.

“That’s going to lead to, I think, a retrenchment in consumer spending, as we get into the new year.”

Weinberg’s base case assumes a slowdown in growth, rather than a recession.

“But the risk is, and I agree it’s a nontrivial risk, that consumers get into trouble,” Weinberg said, noting figures from the New York Federal Reserve showing a rise in delinquencies on credit cards.

“Real incomes have just started coming back again, and not by nearly enough to cover some of the increases in the debt burdens that we’re seeing. So credit to the household sector, consumer credit cards, that’s where the downside risk is. That’s where the risk to this Goldilocks forecast is, and I’m watching it.”

A “Goldilocks” scenario is one in which an economy is growing enough to avoid a recession and a negative hit to the labor market, but not so strongly that it fuels inflation.

Private sector job creation slowed further in November and wages showed their smallest growth in more than two years, payrolls processing firm ADP reported Wednesday.

Companies added just 103,000 workers for the month, slightly below the downwardly revised 106,000 in October and missing the 128,000 Dow Jones estimate.

Along with the modest job growth came a 5.6% increase in annual pay, which ADP said was the smallest gain since September 2021. Job-changers saw wage increases of 8.3%, making the premium for switching positions the lowest since ADP began tracking the data three years ago.

After leading job creation for most of the period since Covid hit in early 2020, leisure and hospitality recorded a loss of 7,000 jobs for the month. Trade, transportation and utilities saw an increase of 55,000 positions, while education and health services added 44,000 and other services contributed 15,000.

Services-related industries provided all the job gains for the month, as goods-producers saw a net loss of 14,000 due to declines of 15,000 in manufacturing, despite the settlement in the United Auto Workers strikes, and 4,000 in construction. Recent layoffs in Silicon Valley and on Wall Street also did not show up in the data, as both sectors posted gains on the month.

“Restaurants and hotels were the biggest job creators during the post-pandemic recovery,” said ADP’s chief economist, Nela Richardson. “But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024.”

Companies with between 50 and 499 employees led job creation, with an addition of 68,000. Small businesses contributed just 6,000.

The ADP report comes two days before the more widely watched nonfarm payrolls count from the Labor Department. The two reports can differ widely, though the numbers for private payrolls were close in October as the Labor Department reported growth of 99,000, just 7,000 below the revised ADP tally.

Including government jobs, nonfarm payrolls increased 150,000 in October and are expected to show growth of 190,000 in November, according to Dow Jones.

Another sign that the labor market is loosening came Tuesday, when the Labor Department reported that job openings declined to 8.73 million in October, the lowest level since March 2021.