Our editors asked Swissquote's Ipek Ozkardeskaya about her thoughts about this week's data, which seems to be crucial ahead of decisions of Federal Reserve and European Central Bank. What's more, we're astonished by Black Friday results which are said to near $10bn, so we asked Ipek for a comment on this case as well.
The ECB, nor any other central bank, can't choose to escape recession over fighting inflation, because inflation is toxic for an economy in the long run, and should be dealt with rapidly to avoid it from becoming structural. Therefore, if ECB policymakers should make a decision between fighting inflation and avoiding recession, they will likely choose fighting inflation. They could however adjust the speed and the force of their action according to the economic conditions. in this respect, recession could slow down the pace of tightening but won't stop it.
Probably not. The Fed has been clear enough in its communication that they are not done fighting inflation. However, because there is a delay between the monetary policy action and the economy's reaction, the Fed officials prefer taking smaller steps while keeping the topside open for higher rates. Therefore, I wouldn't expect the Fed to surprise with another 75bp hike in December. Unfavourable economic data - stronger-than-expected jobs, high-than-expected inflation - would rather be felt for the Fed's end-rate expectations. For now, it is around 5-5.25%.
Despite the record Black Friday sales, retailers broadly reported a rise in inventories and slowing discretionary spending ahead of the peak US shopping season. When it comes to the Black Friday sales, there are two positive forces that explain the record figures. 1. Higher inflation pumps up the final numbers. 2. It is possible that people chose to take advantage of promotions as their purchasing power weakened by inflation. This may explain why we had record Black Friday sales this year.
But even if we factor in inflation there is still be growth in this year's holiday consumption.
This is not necessarily great news for the Fed, which targets a consumer-led recession to slow down inflation. Therefore, the US record pre-holiday sales, combined with the strong monthly retail sales data hint that the US consumer demand has not weakened enough to tame inflation. This means that the Fed would only feel more comfortable pushing its rates higher and get the slow down it is looking for.
