Fed officials’ favorite inflation gauge, the core personal consumption expenditures (PCE) index—which excludes volatile food and energy prices—rose by 0.2% in October, according to Commerce Department data released Thursday. That’s a slight drop from the 0.5% month-over-month gain seen in September. And its still climbing…… The 5% year-over-year core PCE reading was still well above the Fed’s 2% target inflation rate. The upcoming CPI report on Dec. 13 will be “the most important inflation report of the year. “The broader economic picture is darkening,” Daco said, noting that the housing market is “tumbling” under the weight of the Fed’s rate hikes and businesses are pulling back on investing and hiring. “Our view remains that a recession will likely unfold in early 2023,” he added. Even Fed officials believe a U.S. recession over the next year is “almost as likely” as their baseline scenario for a “soft landing,” the Federal Open Market Commitee’s November meeting minutes show. If inflation surprises to the upside in December, then “all bets are off and we could see a sell-off into year-end.” And Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a Thursday research note that he doesn’t believe “macroeconomic conditions for a sustained market rally are yet in place.” Haefele expects an economic slowdown to cut S&P 500 earnings by 4% in 2023, which means investors would be wise to seek out value stocks and “defensive areas” in the stock market like the health-care and consumer staples sectors. Morgan Stanley’s chief investment officer and chief U.S. equity strategist Mike Wilson has also warned that markets could be in for more pain ahead. Wilson believes the S&P 500 could drop to between 3000 and 3300 “sometime in the first four months” of 2023, implying a potential 25% downside in the index from current levels. “The bear market is not over,” he said. “We’ve got significantly lower lows if our earnings forecast is correct.” NN: this is not NOT moderating inflation….. Its more of the same and the FED will continue raising rates