Caution the keyword ahead of US Fed decisions

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news of some caution ahead of the US Fed announcements.</p><p>All eyes are on the US Fed this morning, awaiting their expected tapering decision, and wanting to see their forward track data. This will be released at 8am NZT and we will update the decision on our website. It has the potential to move markets, especially on divergences from the expected signals that are priced in which is heading for a 2.50% official interest rate in about three years from 0.25% now, and with a sharp tapering of new bond purchases in early 2022. The end of QE makes interest rate rises possible.</p><p>Meanwhile, US <a href="https://www.census.gov/retail/marts/www/marts_current.pdf" target="_blank"><strong>retail sales</strong></a> came in slightly weaker than expected, up +0.3% from a month earlier in November after surging +1.8% in October and well below market expectations of +0.8%. This is a sign of slowing domestic demand because it is not price-adjusted and does not reflect the fastest inflation in decades. The so-called core retail sales, which correspond most closely with the consumer spending component of GDP, edged down -0.1% in November. However, we should also note that the November retail sales were +18% higher than year-ago levels. Inflation may now be hurting retail sales volumes.</p><p>More than this, US <a href="https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf" target="_blank"><strong>business inventories jumped</strong></a> +1.2% in October from September and to be almost +8% higher than a year ago - their largest rise in a decade and clear evidence of the costs of the supply-chain changes. This sort of change embeds higher inflation.</p><p>The retreat in confidence expected from the <a href="https://www.newyorkfed.org/medialibrary/media/survey/empire/empire2021/esms_2