Hello! I'm Phil Rosen, reporting from New York City.
Expect to see the market move today in response to the Fed's preferred inflation gauge, Personal Consumption Expenditures, which will be released at 8:30am.
Economists surveyed by Bloomberg expect to see a rise of 0.5% in January from the prior month, which would be the biggest leap since the middle of last year.
The Fed has to take today's data — alongside the resilient job market and robust consumer spending — into account in deciding the right dosage for its next interest rate hike(s).
Dictating the direction of the American economy is a tough gig. Even the most savvy of financial veterans can't know for sure what levers trigger what outcomes, and with the US economy at stake, there's a lot of pressure to make the right call.
All that's to say it's no surprise that we're seeing conflicting views among Fed officials on next steps.
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1. In the Fed minutes released this week, the central bank's own economists have started to sound the alarm on a recession. Among other warnings, officials said inflation's not going away anytime soon.
"The staff still viewed the possibility of a recession sometime this year as a plausible alternative to the baseline," the minutes read.
In November, the same experts said odds were roughly equal to a coin toss regarding whether the US economy would tip into a downturn. But now, the economists are also highlighting the ballooning pressure on asset prices.
Currently, S&P 500 companies remain overvalued. In their words:
"The forward price-to-earnings ratio for S&P 500 firms remained above its median value despite the decline in equity prices over the past year."
Jerome Powell, for his part, has insisted that the Fed's 2% inflation target is set in stone. But that dogmatism could cause a lot of pain for Americans and the economy.
For the central bank to reach that inflation goal, it would need to create a deep recession and more than double the unemployment rate, according to a recent paper from the Cleveland Fed.
The authors of the report see inflation hovering at 2.75% by the end of 2025.
Based on their models, they added that the unemployment rate would have to climb to 7.4% for one year if the 2% inflation target is to be achieved.
The jobless rate today stands at 3.4%.
DataTrek Research cofounder Nicholas Colas wrote in a Thursday note that the paper is a sign that the Fed could consider a change to its policy path.
The economists are suggesting that the economy would be better off if policymakers moderated their inflation target, Colas explained, and that doing so wouldn't alter long-term inflation expectations that much.
"The Fed may change its inflation target at some point, but that will only happen after a recession is well underway and inflation is coming down quickly," Colas said.
"In that scenario, stocks are lower than they are today. We will have other things to worry about at that point besides whether the Fed's inflation target should be 2.0 or 2.75 percent."
How realistic do you think the Fed's 2% inflation target is? How long will it take the economy to get there? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
In other news:
2. US stock futures fall early Friday, lining the major benchmarks up for another losing week, though the PCE inflation reading due later could shake things up. Meanwhile, the incoming Bank of Japan chief signaled rates will stay ultra-low — at least for now. Here are the latest market moves.
3. Earnings on deck: BASF, Aristocrat Leisure, and more, all reporting.
4. Insider asked four tech experts how to invest in artificial intelligence without getting sucked into the hype. The veteran investors shared their ideas for betting on the sector that's been the hottest trend in the stock market. Get the full details.
5. The stock market rally could lose steam because investors are becoming increasingly risk-averse. Longer-term Treasury rates are moving higher, reflecting a risk-off sentiment in the market, according to DataTrek Research: "As long as real yields stay at current levels or increase further, equities may not be able to stage a sustainable rally."
6. JPMorgan CEO Jamie Dimon said a soft landing for the US economy remains a possibility. Speaking with CNBC, the Wall Street executive pointed to the Fed's quantitative tightening and geopolitical conflicts as reason for concern — all of which make him see the path forward as scary and uncertain.
7. There's a salad crisis in the UK. Supermarkets are rationing tomatoes and cucumbers thanks to soaring energy prices and bad weather. In the meantime, the UK's environment secretary suggested Britons should look to turnips instead.
8. This batch of overlooked stocks can help you hedge against underrated recession risks, according to UBS. The firm's analysts shared 40 cheap, high-quality dividend stocks to buy to protect your portfolio in an earnings downturn. See the full list.
9. Comerica Bank's chief economist breaks down why home prices will continue their slide through most of 2023. West coast cities of the US will see the worst price drop-offs, Bill Adams explained — and it's because of these three reasons.
10. Wayfair fell 23% Thursday in one of its worst-ever trading sessions. Shares crashed after the company said in its latest earnings report that it lost 5 million customers last year - in addition to posting a big annual loss of $1.3 billion.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.