Four Economists See a Surprise from the Fed This Week
Inflation, domestic signals and timing strategy have convinced this small minority that the Fed will hike rate
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(editorial note by JJP....the core CPI data this morning posted the biggest jump in 4 1/2 years so... we have core CPI brewing at it's limit and the official Unemployment at 4.9%............. while everyone has there eyes diverted by the politics and the Supreme court nomination... a Fed Funds rate increase today would be a real curve ball..... the FED would not suprise me if they moved today)
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by Michelle Jamrisko
Victoria Stilwell
A Catarina Saraiva
March 15, 2016 — 3:06 PM EDT
An overwhelming majority of economists are betting this week's Federal Reserve meeting will be something of a snooze, with officials delaying another interest-rate increase amid lackluster U.S. demand and a gloomy outlook for global growth.
Economists in monthly surveys since December have steadily pulled back on earlier calls for a rate hike at this week's meeting. Four out of the 97 currently polled by Bloomberg, however, are making the case for a surprise quarter-point hike to a target range of 0.5 to 0.75 percent for the benchmark federal funds rate.
The outside call for a hike rests on the idea that the twin policy goals that Fed officials are striving to achieve have been met:
1. Inflation is showing a pulseFor one reason why the Fed could pull the interest-rate trigger again, look no further than the inflation side of the two mandates Congress established for the central bank. For much of the past year, inflation has been too low, dampened by a plunge in energy prices. But a nascent rebound in oil is giving some economists reason to believe Fed officials will take special notice. The other goal is maximum employment and by the Fed's own estimate the economy is pretty much there, with the jobless rate at 4.9 percent.
Central bankers will get one more read on price pressures Wednesday morning before the release of their statement and economic projections at 2 p.m. in Washington. Chair Janet Yellen's press conference will follow a half-hour later. The morning's consumer price index report from the Labor Department has the potential to sway fence-sitters toward a rate increase, said Jason Schenker, president and chief economist of Prestige Economics LLC in Austin, Texas.
"Core inflation is becoming an issue, and it was also one of the key drivers behind their last rate hike" in December, Schenker said. "If that CPI report shows core inflation keeps going up, they're not going to want to sit on this till June."
Schenker is calling for a 0.2 percent increase in February's core CPI gauge from the prior month, in line with the median of 79 economists in the Bloomberg survey. If his projection bears out, the year-on-year increase in core inflation will match the highest since June 2012.
"Given the trend in core CPI, if they don't raise rates, to me that would be an economically bearish signal," Schenker said.
2. Domestic, not global, forces prevailFed officials at their January meeting nodded to dimmer expectations for global growth, which had roiled financial markets around the world.
Since then conditions have calmed down somewhat, and the turmoil of earlier months seems to have had a limited impact on both the labor market and inflation, two areas that the Fed said it would monitor going forward in line with its dual mandate.
"They said they were going to keep an eye on international markets, and certainly while there was a tremendous amount of volatility at the start of the year, cooler heads have prevailed as we head into the March meeting," Lindsey Piegza, chief economist at Stifel Nicolaus & Co. Inc. in Chicago, said in an interview Monday.
Domestic growth held up in the face of the stock-market slump, save for conjecture that it may have impacted consumer spending in the month of February, when the Standard & Poor's 500 Index fell to an almost two-year low.
And while tepid international growth may remain a sticking point for Fed officials, "that's a very dangerous stance to take, to say that we're now basing domestic monetary policy on what other central banks around the world are doing," said Piegza, who pegged her forecast for an interest-rate increase on the belief that the Fed's own guidance has been met.
3. Time is of the essenceTracking the speeches and other public comments of Fed officials over the past several weeks, Derek Holt, an economist at Scotiabank in Toronto, sees a fair conclusion that policy makers have "sufficiently laid out the conditions for a hike now," he said in a March 11 research note. At the same time, Holt affirmed in a separate e-mail that he has a low-to-moderate conviction that they will raise rates, even as he maintains a "very high" conviction that they should. A delay this week would mean the increase would only be pushed "a meeting or two," Holt predicted.
Schenker senses urgency in the Fed decision this week, as his firm projects the next U.S. recession will start as soon as the fourth quarter of this year. He points to a "manufacturing recession" in the U.S., a contraction in business investment, and energy prices that are too slow to rebound as the biggest risks forging another downturn.
A Fed hike now would at least provide some cushion for policy makers to lower rates again in case of a plunge in growth, Schenker said.
"If they don't do it now, it just gets tougher to do it later," he said.
David Crowe, chief economist at the National Association of Home Builders and the fourth forecaster of an interest-rate increase this month, did not respond to requests for comment.
http://www.bloomberg.com/news/articles/2016-03-15/four-economists-see-a-surprise-from-the-fed-this-week
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CPI Report: US Core Inflation Data Show Largest Jump In Over 4 Years
BY REUTERS ON 02/19/16 AT 8:47 AM
Rising rents and medical costs lifted underlying U.S. inflation in January by the most in nearly 4-1/2 years, signs of an uptick in price pressures that could allow the Federal Reserve to gradually raise interest rates this year.
- The Labor Department said on Friday its Consumer Price Index, excluding the volatile food and energy components, increased 0.3 percent last month. That was the biggest gain since August 2011 and followed a 0.2 percent rise in December.
In the 12 months through January, the core CPI advanced 2.2 percent, the largest rise since June 2012. The CPI had increased 2.1 percent in December. The Fed has a 2 percent inflation target and monitors a price measure that is running well below the core CPI.
Economists polled by Reuters had forecast core CPI up 0.2 percent last month and increasing 2.1 percent from a year ago.
Inflation is being watched for clues on whether the Fed would continue raising interest rates this year after the U.S. central bank lifted borrowing costs in December for the first time in nearly a decade.
Tighter financial market conditions in the wake of a recent sharp stock market sell-off and slowing domestic and global growth have almost wiped out bets for a March rate increase.
Signs of a pick-up in underlying inflation are likely to be welcomed by Federal Reserve officials, but significant gains remain a challenge against the backdrop of very low inflation expectations by households.
Still, the firming in the core CPI, together with a strengthening labor market suggest rate hikes for the rest of the year remain on the table.
The overall CPI was unchanged last month after slipping 0.1 percent in December. The CPI increased 1.4 percent in the 12 months through January, the biggest rise since October 2014, after gaining 0.7 percent in December.
The year-over-year inflation rate is rising as the oil price-driven weak readings in 2015 wash out of the calculation.
The government on Wednesday published revisions to the inflation data going back five years. Those revisions showed both the monthly CPI and core CPI readings a bit firmer in the last months of 2015 than previously reported.
Last month, the rental index increased 0.3 percent after a similar gain in December. Medical care costs rose 0.5 percent, with prices for prescription drugs also increasing 0.5 percent. The cost of doctor visits edged up 0.1 percent after falling 0.2 percent in December. Hospital costs increased 0.4 percent.
Apparel prices rose 0.6 percent after falling for four straight months. The increase in apparel is surprising as retailers have been offering deep discounts to sell unwanted inventory. Prices for new motor vehicles advanced 0.3 percent.
Gasoline prices fell 4.8 percent, while food prices were unchanged.
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