The final two blockbuster events of 2023 will hit the U.S. stock market in the coming week.

Tuesday's U.S. consumer price index report for November will provide the final piece of the inflation puzzle ahead of the Federal Reserve's final interest rate decision of the year on Wednesday.

A press conference by Fed Chairman Jerome Powell and a new set of economic forecasts from Fed officials for the coming years will also be the focus of Wednesday's meeting. The U.S. Producer Price Index (PPI) will be released on Wednesday morning, retail sales data will be released on Thursday and U.S. manufacturing activity data will be released on Friday.

In addition, major companies such as Costco (COST.US), Adobe(ADBE.US) and Lennar Construction (LEN.US) will report earnings this week.

Markets entered the week on a strong note, with all three major U.S. indexes Posting gains for the past six weeks. So far this year, the Dow is up more than 9% and the S&P 500 is up nearly 20%. The Nasdaq is up nearly 38 percent.

The S&P 500 is now less than 5 per cent from its record closing high.

The Fed will pause

At 2 p.m. Et on Wednesday, the Federal Reserve will release its final rate decision of the year. Markets are pricing in a close to 100% chance that the Fed will keep rates unchanged at 5.25% to 5.50%.

Along with the policy decision, Fed officials will release an updated summary of their economic forecasts, which includes a "dot plot" of policymakers' expectations for the future path of interest rates. Forecasts for inflation, GDP growth and unemployment will also be released.

Powell's press conference is scheduled to begin at 2:30 p.m. Et, and investors will want to hear how the Fed chairman balances investor expectations that interest rates could start falling as early as next March.

Powell, who last spoke publicly on Dec. 1, called speculation of a rate cut "premature."

Investors will be watching closely to see if recent data, particularly the November jobs report and inflation data on Tuesday, will influence the Fed's discussion of the future path of policy.

Powell will take questions from the media on Wednesday. But Michael Feroli, chief economist at jpmorgan Chase & Co., doesn't think Powell will weigh in on rate cuts.

"At the press conference, we think Powell will try to shift the conversation away from the timing of the first easing and will say that for now the committee is only considering whether to stay on hold or tighten policy," Feroli said.

Michael Pearce, chief U.S. economist at Oxford Economics, also believes Wednesday's press conference will be slightly hawkish, indicating that Powell and the Fed are leaning toward keeping rates higher for longer.

"We expect the latest economic forecasts and post-meeting press conference to negate the idea that a rate cut could be on the table any time soon, emphasizing that inflation remains too strong and risks to the upside," Pearce said.

"If anything, we expect policymakers to keep rates too high for too long."

Inflation developments are closely watched

A day before the Fed's interest rate decision, investors' attention will be focused on the November CPI at 8:30 a.m. Et.

Economists expect the overall consumer price index rose 3.1% in November from a year earlier, down from 3.2% in October. Prices will remain flat month-on-month for the second consecutive month.

Core CPI, which strips out volatile food and energy prices, is expected to rise 4 per cent from a year earlier, similar to the previous month's rise.

The Fed's annual inflation target is 2 percent.

The core CPI is expected to have risen 0.3% month-on-month in November, up from 0.2% in October.

"Similar to last month, we expect lower energy prices to weigh on overall [inflation], while core categories such as rents, insurance, auto repair and other services remain under upward pressure," Jefferies' economics team, led by Thomas Simons, said in a report on Friday.

Tuesday's report will give investors their first look at inflation in November. The October data showed that the Fed's preferred inflation measures, core CPI and core personal consumption expenditures, reached their lowest annual inflation levels since September and April 2021, respectively.