The Fed wraps up its latest FOMC meeting this afternoon and then we will learn whether it is lift-off time or not. In making a decision, Fed officials will be grappling with a lot of fresh data, though the overall picture is not particularly new.
By Peter Martin
Thursday, September 17, 2015
In fact it’s a story that has been recounted month after month, namely a tale of robust labor conditions alongside the intractable problem of low inflation. Thrown into the mix in recent weeks is the issue of heightened market volatility stemming from the slowing Chinese economy.
Reports released yesterday and this morning reinforce the view that the jobs market is doing fine and underline the risk of deflation. August’s Consumer Price Index (CPI) was released on Wednesday and showed a 0.1% decline at the headline level, taking the year-on-year change to a measly +0.2%. At the core level, which excludes food and energy prices because of their volatility, the monthly change was +0.1%, which maintained the year-on-year change at +1.8%. The softness in the CPI was owing in a large part to lower gasoline prices, but as we can see from the core level, there are few signs of acceleration in other areas. Oil prices have recovered somewhat from their August lows, but still remain lower than levels in July and with global growth looking fragile, it’s difficult to make a case for inflation pushing back towards target in the near future.
Jobless claims have been holding down at very low levels by historical standards and managed to push even lower last week, a bullish sign for September’s employment report, given last week was the sampling week used by the Bureau of Labor Statistics in compiling its official monthly figures. Initial claims fell a surprise 11,000 to 264,000, hitting an eight-week low and pushing the four-week moving average down from 275,750 to 272,500, a similar level to how things were looking for this metric a month ago.
Of course, the Fed has stated it will be looking at wider measures than just inflation and employment, saying it will also look at ‘readings on financial and international developments.’ Manufacturing weakness indicated in the Fed’s own industrial production report earlier in the week will be a concern, but housing is likely to be considered a boost for the economy. Data released this morning showed a decline in new construction, but a rise in permits. Housing starts fell 3.0% in August to an annualized pace of 1.126 million, while building permits climbed 3.5% to 1.170 million. The decline in starts may cause some tempering of expectations for the third quarter, but the rise in permits should boost momentum for starts further down the line.
Stock indices remained within a narrow channel in early trading on Wall Street, suggesting that investors are adopting a wait-and-see approach ahead of the Fed decision. Stocks were narrowly in the red shortly after the open, the Dow Jones sliding 21 points or 0.13% to 16,718, while the broader S&P 500 index was effectively flat at 1995.2. The FOMC statement is scheduled for release at 2.00pm ET, with Fed Chair Janet Yellen’s press conference slated to follow half an hour later.
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