Fed Minutes Recap: Uncertainty and Soft Landing Caution
The recently released Fed minutes from the Dec. 12-13 meeting reveal a nuanced landscape of uncertainty among policymakers. Some express concerns about prolonged high rates, fearing a sudden job market downturn, while others advocate for a steady target rate. Richmond Fed President Tom Barkin, set to join the Federal Open Market Committee, adds a note of caution, stating a soft landing is conceivable but not inevitable.
Despite the decision to keep rates unchanged touched upon in our article previewing the Fed minutes release, the minutes lack a clear debate on initiating rate cuts. While there’s a consensus on eventual rate decreases, uncertainty prevails after the most rapid rate increase in four decades. Analysts anticipate cuts, but the timing and extent remain up for debate, with the Fed’s pivot still speculative. Amidst this, Barkin warns of latent effects on a soft landing, introducing a cautious tone for the economy in 2024. The delicate balancing act continues, with inflation, interest rates, and economic stability at the forefront of Fed considerations.
Global S&P Global PMI Surpasses Expectations
In a surprising twist, the UK’s service sector experienced its fastest growth in six months, outperforming expectations. The S&P Global UK services PMI for December rose to 53.4, surpassing the anticipated 52.7. This upbeat result indicates a sector in robust expansion, concluding the year on a high note.
Meanwhile, the US services PMI for December, conducted by S&P Global, exceeded expectations with a reading of 51.4, slightly above the forecasted 51.3. This marks the 11th consecutive month of expansion, reaching the highest level since July. The data signals accelerated growth in the vast services economy, offsetting a downturn in manufacturing and suggesting a slight uptick in overall US economic growth at the year’s end.
On the flip side, the HCOB’s Composite Purchasing Managers’ Index (PMI) for the Eurozone, compiled by S&P Global, remained below the growth threshold for the seventh consecutive month. It held at 47.6 in December after a preliminary estimate of 47.0, and was above expectations. While this signifies ongoing contraction, the services PMI did show a modest improvement, reaching a five-month high of 48.8 from November’s 48.7.
US ADP Employment Data Better Than Anticipated
The ADP employment report for December exceeded expectations, unveiling a notable increase in US employment. Forecasts hinted at a modest rise of 115k jobs, following November’s 103k uptick. However, the actual data presented a positive surprise, showcasing a robust 164k surge.
The lion’s share of this employment boost came from the services sector, contributing a substantial 155k jobs, while goods-producing jobs added a modest 9k. The November figures underwent a slight revision, dipping from 103k to 101k, with the market response showing a relatively muted reaction.
Looking ahead, with current estimates for tomorrow’s official Non-Farm Payrolls hovering around 170k, the ADP data offers an encouraging prelude to potential economic vitality in the immediate future.
