A Long Rollout

Data since the FOMC met in November has generally noted strong growth and warm inflation. For 4Q, growth is running somewhere in the low-3% range thanks to a strong (if late) start to the holiday season. After a weather-related dip, employment rebounded in Nov., leaving the 3-month average payroll gains at +173K, only about 10% slower than the similar period last year. The warm inflation includes four consecutive months of core CPI readings at +0.3%, a notable upshift from the summer’s mild pace. The Fed’s preferred core PCE is running at a +2.7% annualized rate from Aug - Nov (incl our assumptions for this month), notably higher than the 2.0% long run target. Unlike in other recent periods of inflation uptick, there’s no single sector on which to pin the increases; instead, the slightly toasty readings are widespread. We anticipate, however, that housing-related inflation components will downshift slightly into 2025, and it seems Fed officials are implicitly counting on the same in order to pencil in rate cuts for the new year. Housing inflation has, however, remained stubbornly persistent despite outward indications that it should be decelerating.