Interest rates will keep rising. How high will they go?

By Nicole Goodkind, CNN Business

What will the Federal Reserve do at its meeting in December? Analysts can speculate all they want, but Fed officials say they will be using hard economic data to make their next decision.

That means key housing, labor, and inflation reports will likely have outsized effects on the market as investors speculate about what they might mean for the future of interest rates.

What’s happening: No one can move markets like Federal Reserve Chair Jerome Powell — with just a few words on Wednesday he crushed investors’ hopes of an interest rate pivot and sent stocks plunging. “We have a ways to go,” said Powell of the Fed’s current hiking regime meant to fight persistent inflation. “It’s very premature, in my view, to think about or be talking about pausing.”

But Powell did add an important caveat. The Fed could start to slow the pace of those painful hikes as soon as December. “Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation,” Powell said on Wednesday.

So what will the Fed be looking at between today and its next policy decision on December 14?

The labor market: The Fed’s biggest worry is the super-tight US labor market, and Friday’s jobs report isn’t likely to soothe any nerves.

The government report is expected to show the economy added another 200,000 positions in October — down from last month, but still a very solid number as demand for employment continues to outpace the supply of labor.

That means more inflation. Businesses have to pay higher wages to attract employees and are able to charge more for their goods and services. The Fed will be looking closely at hourly wage growth in the report. In September, wages rose by 5% from a year ago.

There is a possible upside: Another jobs report in December is expected ahead of the Fed meeting. If both reports show a downward trajectory in employment, that could be enough to placate Fed officials, even if the unemployment rate remains historically low.

Inflation data: Expect new data from two major indexes that measure the pace of inflation ahead of the next Federal Reserve meeting.

The Consumer Price Index (CPI) for October, which tracks changes in the prices of a fixed set of goods and services, is out on November 10.

Core CPI prices, which exclude oil and food, rose 0.6% in September month-over-month, matching August’s pace and coming in well above expectations of a 0.4% increase, not a great sign for the Fed. And analysts expect to see another large 0.5% increase in October.

The Fed will also get to see October data from its favored measure of inflation, Personal Consumption Expenditures (PCE), on December 1.

PCE reflects changes in the prices of goods and services purchased by consumers in the United States. The Fed believes the measure is more accurate than CPI because it accounts for a wider range of purchases from a broader range of buyers.

Core PCE climbed by 5.1% on an annual basis in September, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.

Housing: The housing market has been deeply impacted by the Fed’s efforts to fight inflation, and is one of the first areas of the economy to show signs of cooling.

The 30-year fixed-rate mortgage averaged 6.95% last week, up from 3.09% just a year ago, and elevated borrowing costs are leading to a decline in demand.

“The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low,” said Powell on Wednesday. “We do understand that that’s really where a very big effect of our policies is.”

October’s new and existing home sales numbers, due on November 18 and 23, will show the continued impact of that policy ahead of the next meeting.

Bank of England sets biggest rate hike in 33 years

The US economy is still standing strong in the face of rising interest rates, but things are softening much more quickly across the pond.

The United Kingdom will face hard economic times and elevated interest rates well into next year, officials warned this week.

The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the biggest hike in 33 years, as it attempts to fight soaring inflation.

But the bank also issued a stark warning. It said that economic output is already contracting and that it expects a recession to continue through the first half of 2024 “as high energy prices and materially tighter financial conditions weigh on spending.”

A two-year recession would be longer than the one that followed the 2008 global financial crisis, though the Bank of England said that any declines in GDP heading into 2024 would likely be relatively small.

The central bank also doesn’t think inflation will start to fall back until next year. That will require more interest rate hikes in the coming months, warned policymakers.

Keeping up with Elon

Elon Musk has been busy over at Twitter HQ. Aside from tweeting and deleting a conspiracy theory, he’s talked about implementing some big changes at his $44 billion acquisition. Here’s what’s happened so far:

Layoffs begin: Elon Musk began laying off Twitter employees on Friday morning, according to a memo sent to staff. The email sent Thursday evening notified employees that they will receive a notice by 12 p.m. ET Friday that informs them of their employment status.

The email added that “to help ensure the safety” of employees and Twitter’s systems, the company’s offices “will be temporarily closed and all badge access will be suspended.”

Twitter had around 7,500 employees prior to Musk’s takeover.

Several Twitter employees have already filed a class action lawsuit claiming that the layoffs violate the federal Worker Adjustment and Retraining Notification Act.

The WARN Act requires any company with over 100 employees to give 60 days’ written notice if it intends to cut 50 jobs or more at a “single site of employment.”

Consolidating strength: In less than a week since Musk acquired Twitter, the company’s C-suite appears to have almost entirely cleared out, through a mix of firings and resignations.

Twitter’s board of directors was also dissolved last week, according to a securities filing.

The company filing states that all previous members of Twitter’s board, including recently ousted CEO Parag Agrawal and chairman Bret Taylor, are no longer directors “in accordance with the terms of the merger agreement.” That makes Musk, according to the filing, “the sole director of Twitter.”

Cashing blue checks’ checks: Musk on Tuesday said he planned to charge $8 a month for Twitter’s subscription service, called “Twitter Blue,” with the promise to let anyone pay to receive a coveted blue check mark to verify their account. That’s a steep haircut from his original plan to charge users $19.99 a month to get or keep a verified account.

In a tweet, the world’s richest man used an expletive to describe his assessment of “Twitter’s current lords & peasants system for who has or doesn’t have a blue checkmark.” He added: “Power to the people! Blue for $8/month.”

Advertisers hit pause: Elon Musk wrote an open letter to advertisers just hours before cementing his acquisition of Twitter, explaining that he didn’t want the platform to become a “free-for-all hellscape.” But that attempt at reassuring the advertising industry, which makes up the vast majority of Twitter’s business, doesn’t appear to be working.

General Mills, Mondelez International, Pfizer and Audi have reportedly joined a growing list of companies hitting pause on their Twitter advertising in the wake of Musk’s acquisition.

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