US Economic Notes:What you need to know for the week ahead

Commentary for Monday: Next week is radio silence from the Fed, as it entersits self-imposed blackout period ahead of the December 12-13FOMC meeting.However, that does not mean that all will be silent in Washington. After a rushto move tax reform forward in the Senate, lawmakers must now turn to fundingthe government. The previous continuing resolution (CR) expires on December8th, and the Republican majority needs at least some Democratic buy-in tokeep the lights on. Some Democrats seem willing to take the political risk anddemand concessions in areas they consider politically favorable, such as costsharing subsidies (CSRs) for the Affordable Care Act, children’s healthcare (CHIP)and immigration (the DREAM act). We view a shutdown as unlikely, but it isnevertheless a nonzero probability.

    With respect to this week’s economic data, Friday’s employment report will beone of the last major releases policymakers will see ahead of the December 12thFOMC meeting. We expect a healthy gain in November nonfarm payrolls (+175kforecast vs. +261k previously). However, we expect the unemployment rate (4.2%vs. 4.1%) to edge up slightly due to some payback from October’s 0.4percentagepoint drop in the labor force participation rate. To be sure, we continue to expectthe unemployment rate to remain on its downward trajectory over the next severalquarters, which is one reason why we now expect the Fed to hike four times nextyear compared to three previously. Note that we have not altered our assessmentof the terminal rate and thus see the Fed hiking three more times in 2019(ratherthan four times) eventually reaching 3.13%. For a full discussion of our updatedFed outlook, please see the latest Fed Notes.