Potentially Soft Economic Data Vs. Inflation

If it’s not one thing, it’s one other.

Economic data released last week will factor into this week’s Federal Open Market Committee (FOMC) decision on whether to push interest rates higher in the United States. Some of the August data supports the idea economic growth was soft. For example, August retail sales fell more than expected, down 0.3 percent from July. Other data was as expected: U.S. producer prices were flat, which was in line with expectations.

However, the kicker may be inflation. It increased during August, “…offering fresh evidence that U.S. inflation may be firming after years of sluggish price growth,” wrote The Wall Street Journal. The Consumer Price Index, which is a gauge of inflation, rose more than economists had expected in August in large part because of higher healthcare costs, according to Reuters.

Stock markets steadied last week as the chances of a rate hike this week declined. Barron’s reported:

“The probability of a rate hike, as measured by the fed-futures market, sank to 20 percent from more than 30 percent a week earlier. Still, investors fear a September surprise… ‘The Fed’s in a tough spot,’ says Aaron Clark, a portfolio manager at GW&K Investment Management. ‘The governors want to hike but the window is closing.’ The Fed can cry wolf so many times before it loses credibility and dilutes the power of “Fedspeak” in the future.”

If the FOMC increases rates this week, there may be “knee-jerk selloff,” according to Barron’s, and if rates remain unchanged, a relief rally may ensue. Either way, the paper opined, much will depend on the FOMC’s explanation.

So, will the Federal Reserve raise rates or won’t they? We’ll find out soon.

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* “The Economic Cage match: Softening Data Vs. Rising Inflation'”

Sources:

http://www.bloomberg.com/news/articles/2016-09-15/retail-sales-in-u-s-decline-in-august-by-more-than-forecast

http://www.cnbc.com/2016/09/15/us-producer-price-index-aug-2016.html

http://www.wsj.com/articles/u-s-consumer-prices-rose-0-2-in-august-1474029209

http://www.reuters.com/article/us-usa-economy-idUSKCN11M193

http://www.barrons.com/articles/dow-s-p-eke-out-slim-gains-as-rate-fears-flag-1474097390?mod=BOL_hp_we_columns

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