U.S. inflation picks up steam—Is a December rate hike likely?

On today’s special podcast edition of Market Week in Review, Consulting Director Sophie Antal Gilbert chatted with Mark Eibel, director, client investment strategies, about the latest U.S. core inflation and retail sales numbers and the impact they could have on the U.S. Federal Reserve (the Fed) as it weighs a December funds rate hike.

Encouraging U.S. economic data for October: What could it mean for the Fed?

The numbers released by the U.S. Department of Labor on Nov. 15 showed a 1.8% year-over-year increase in core inflation during October. “While that’s still a little below the magic 2% number that the Fed is looking for, it’s getting close,” Eibel said. Factoring in the positive retail sales numbers from last month—the country saw a 0.2% bump in purchases during October—makes a December interest rate hike by the Fed more and more likely, he added. “Together, both sets of data almost seal the deal for a rate increase next month,” Eibel concluded—“especially since other key U.S. economic indicators are also trending positive.”

U.S. tax reform measure clears House—Senate up next

Shifting gears to the tax reform efforts underway in the U.S. Congress, Eibel noted that the House of Representatives passed its version of a tax bill on Nov. 16. Given that the Senate still has to approve a version of its own—and from there, reconcile with the House to come up with a joint version—it would appear that Congress is still in the early innings of the process, Eibel said. However, “this game’s probably going to get played pretty quickly,” he stated, “because, for the Republican party, once the calendar flips to the new year, the November 2018 mid-term elections are going to come into focus.”

In the opinion of Eibel and the team of Russell Investments strategists, a final tax reform measure is likely to be signed into law during the first quarter of 2018. “The message from the Trump administration has been that this could be done by the end of the year—but we think that’s going to be difficult to do as we enter the heart of the holiday season,” he said, adding that, regardless, the process will probably move fairly quickly from here on out.

Germany, Italy help boost third-quarter growth across Europe

Turning to Europe, Eibel noted that the region experienced solid growth during the third quarter, with Germany and Italy helping lead the charge. Germany saw a 0.8% gross domestic product (GDP) growth rate during the July to September timeframe, while Italy experienced a 0.5% uptick in the same period, according to data from Eurostat. In Eibel’s viewpoint, the upward trend in growth rates is sustainable moving forward—within each country, and for the region as a whole.

“This pattern of growth across Europe is similar to what we’ve seen in the U.S.—it’s just playing out a little later,” he explained. Eibel and the team of Russell Investments strategists believe that this will translate into a continued robust European economy in 2018. For investors, in his opinion, “having exposure to these markets is a wise move,” he concluded.