Wall Street makes unsteady start to December

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The Fed has raised its benchmark rate six times since March, driving it to a range of 3.75 per cent to 4 per cent, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5 per cent to 5.25 per cent by the middle of 2023.

A big concern for Wall Street has been whether the Fed can tame rates without sending the economy into a recession as it hits the brakes on economic growth. Businesses are seeing demand fall for a wide range of goods as inflation squeezes wallets and analysts generally expect the US to dip into a recession, even if it is mild and short, at some point in 2023.

“What turns mild recessions into deep economic scarring is the buildup of excess, and we don’t have a bubble this time,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management.

Inflation will continue to be the main focus for Wall Street, and “on that score, things seem to be coming off the boil,” she said.

The latest government data on inflation comes amid several reports from the employment sector showing that the labor market is starting to soften. The strong labor market has been good for the economy, but has made it more difficult for the Fed to fight inflation as wages grow. The closely watched monthly report on the job market will be released on Friday.

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Investors are also getting more data this week on inflation’s impact over the broader economy. Activity in the manufacturing sector contracted in November for the first time since May 2020, according to the Institute for Supply Management. The report also shows that prices are falling.

“All signs point to a deceleration of inflation in everything except wages,” Nixon said. “That is sort of the last man standing.”

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