All Eyes on Fresh Inflation Figures Due This Week

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What's Happening Today

If you looked at your investment accounts today, you might have been pleasantly surprised to see stocks rising as they extend Friday's rally on the heels of a strong jobs report which alleviated fears of a recession.

And that rally could be boosted this week, when the Consumer Price Index (CPI) is released on Thursday. The CPI will let us know how much inflation is still battering our wallets, and could signal to investors what the potential next steps from the Federal Reserve will be.

Economists are forecasting that the rate of inflation eased to 6.6% year-over-year in December, in a steep drop from 7.1% the month before. A big dip in inflation could push the Fed to be a little more moderate in its interest rate hikes this year. The Fed racked up four rate hikes of 75 basis points each beginning last June, and followed those with a 50-point increase in December. If the CPI shows inflation did take a big dip, you might see investors celebrate and stocks soar on bets that the Fed will pursue a smaller interest rate increase later this month.

But if inflation remains persistently high, or doesn't decline as much as expected, concerns will likely grow again that the central bank might give us another large rate hike, which would make borrowing money more difficult and expensive. Rate hikes also cause economic pain by slamming the brakes on the economy, which could cause higher levels of unemployment, or even a recession.

Currently, markets are predicting a 77% chance that the Fed will hand us a rate hike of 25 basis points at its next meeting that kicks off at the end of the month.

- Kristin

What's Happening Today

Has Inflation Finally Peaked? (CNN Business)

Morgan Stanley Warns US Stocks Risk 22% Slump (Bloomberg)

As White-Collar Layoffs Rise, Blue-Collar Resilience Faces Test in 2023 - WSJ (The Wall Street Journal)

Here's How the Rules of Retirement Are Changing This Year (The Balance)

How Much Money Do You Need To Retire? (The Balance)

IRA vs. 401(k): What's the Difference? (The Balance)

How To Get Cash From a Credit Card Without a Cash Advance (The Balance)

Term of the Day

Roth 401(k)

A Roth 401(k) is an employer-sponsored retirement plan that allows for after-tax contributions and combines some of the features of a Roth IRA and a traditional 401(k) to allow for tax-free distributions in retirement.

Roth 401(k) plans—also called designated Roth accounts—are only available through employers that choose to offer them. Any contributions that you make in a Roth 401(k) are after-tax contributions. However, any employer contributions to the plan are made pre-tax and kept in a separate account, which is taxed on withdrawal in retirement. Distributions from your own contributions will be tax-exempt, while distributions from employer contributions will be taxed.

If you expect to be in a higher tax bracket when you retire, then a Roth 401(k) might be a good option for you.

Off the Charts

Despite indicating an abundance of jobs, Friday's jobs report from the Labor Department showed employers got a little less keen to hike pay, with average hourly wages rising just 0.3%, the lowest since February.