Cooling Inflation and Layoffs Fuel Market Optimism

This report is from today's CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe. A stopgap government funding bill was passed on Saturday. President-elect Donald Trump and Elon Musk thwarted an initial, negotiated funding plan Wednesday by harshly criticizing its provisions, and specifically insisted on suspending the U.S. debt limit for two years.

The personal consumption expenditures price index (PCE), the U.S. Federal Reserve's preferred gauge of inflation, showed on an annual basis prices increased 2.4%. Both readings were 10 basis points lower than expected. Core inflation also came in 10 basis points below forecast. Layoffs in U.S. public companies this year through November reached 708,000, according to outplacement firm Challenger, Gray & Christmas. That's the highest level since the firm started tracking data in 2010. The so-called Santa Claus Rally, traditionally occurring on the last five trading days of the year and the first two of the next, could reignite seasonal cheer. In data going back to 1969, the S&P has added 1.3% on average, according to the Stock Trader's Almanac. But November's PCE came in cooler than expected. 'Sticky inflation appeared to be a little less stuck this morning,' said Chris Larkin, managing director of trading and investing at E-Trade Morgan Stanley. The Federal Reserve has stated that it's 'data-dependent.' Would the Fed, then, have presented the world with a slightly different dot plot, if they'd had the chance to review the PCE data first? Giving slight credence to that train of thought, Chicago Fed President Austan Goolsbee told CNBC's Steve Liesman he's hopeful November's inflation reading 'suggests that the couple of months of firming were more of a bump than a change in path.' In other words, the economy is 'still on path to get to 2%,' said Goolsbee

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Fed Faces Dilemma: Sticky Inflation vs. Cooling Labor MarketThe Federal Reserve is grappling with a decision on interest rates as inflation remains stubbornly high despite signs of a softening labor market. While recent data shows that disinflation has stalled, the unemployment rate remains low at 4.2%. The Fed has a dual mandate to control inflation and maximize employment, but the current economic conditions may require prioritizing one over the other.
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