09|07|2016

Rate Watch: Day 261

On December 16th, 2015 The Federal Reserve Board (FRB) raised rates for the first time since 2006. They also said they were going to raise rates 4 times in 2016…

It has been 261 days since the last rate hike. There are only 3 meetings left in the year and news from last week all but eliminated September as a contender for a rate hike.

US Data
The data started the week decent, but fell apart quickly as the week progressed.

Core PCE, the FRB’s preferred measure of inflation came in at 1.6% year over year. This falls below the 2% level the FRB is targeting. The expectation would typically be that the FRB would leave policy loose to allow inflation to rise. Personal spending met expectations at 0.3% and CB consumer confidence rose to 101.1.

That was the end of the good news… ISM Manufacturing came in at 49.4 for August. A level that signifies contraction, not typically a point where the FRB would raise rates. Private nonfarm payrolls missed by 52,000 and unemployment remained unchanged at 4.9%[1]. The goal of the FRB would be to raise rates in an environment where inflation was rising and peak employment.

Housing Data
US housing data fared better for the week. Pending Home Sales for July came in at 1.3%, beating expectations of a 0.6% increase. S&P/Case Schiller Home Price Index (20 City) increased by 5.1% year over year[2]. Our local market (Denver) fared better at 8.4% year over year growth[3]. Housing data continues to show modest strength. It should wane as we move into the fall season.

International Data
Brazil has officially impeached their president for manipulating the federal budget. Impeachment is not new to Brazil, they also impeached their president in 1992. Vice President Michel Temer will remain in power and will have till 2018 to implement intended reforms.

German economic strength continued to shine through European weakness. Retail sales increased 1.7%, manufacturing PMI came in at 53.6, and German unemployment remained unchanged at 6.1%. The strength in the German economy is doing much to carry the European Union at this time[4].

Conclusion
261 Days since the last rate hike. The FRB has made it clear that they are intending to raise rates soon. With the recent poor employment and manufacturing data, it looks like there may be an additional 6 to 12 weeks being added to the count before we see a rate hike. November remains an unlikely candidate given the election. December is being set up a s a déjà vu of the December 2015 meeting…

 

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[1] www.investing.com – economic calendar

[2] www.investing.com – economic calendar

[3] www.us.spindices.com – s&p c/s hpi 20 city

[4] www.investing.com – economic calendar