- A modest decline is expected for US housing starts for today's August update
- US jobless claims on track to be close to a four-decade low to mid September
- In addition to rates decision, the Fed also updates quarterly economic forecasts
It's here.. finally! Thursday's all about the Federal Reserve Bank's decision on raising its policy rate - or not. The fun begins at 1800 GMT, with the release of the policy statement and rate decision, followed by Fed chair Janet Yellen’s press conference at 1830 GMT.
As of midday Wednesday, the futures-implied probability of a rate hike remained low - less than 30%, according to Bloomberg’s calculation.
Before we hear from the Fed we’ll see two key economic reports for the US - numbers that may dispense one last bit of influence on the central bank's rate decision. With that in mind, the crowd will be eager to see the updates on housing starts for August and the weekly data on jobless claims. Meantime, don't overlook the fact that the Fed also publishes a new set of quarterly forecasts today.
US: Housing Starts (1230 GMT): Today’s update on residential construction activity is arguably the day’s most important number for hard data releases. The stakes are unusually high because housing’s upbeat trend of late is a positive counterweight to the weak figures for industrial production and manufacturing in recent months.
A major setback in today’s monthly profile for housing starts and newly issued building permits would cast a dark shadow over the economic outlook.
Although the crowd’s expecting a modest decline in today’s number, Econoday.com’s consensus forecast for 1.168 million starts (seasonally adjusted) for August (against 1.206 million in July) doesn’t look particularly worrisome. Assuming that the prediction holds up, the decline for last month still translates into a solid 21% year-over-year rise, which is close to the best annual increases in recent history.
A number that falls well below the consensus view, however, would weigh heavily on sentiment - especially on a day when the Federal Reserve could raise interest rates. But a deeply disappointing report appears to be a low-probability event, based on the upbeat sentiment readings in the home building industry in recent months.
The National Association of Home Builders yesterday reported that its Housing Market Index ticked up to a 10-year high for September. The news reaffirms that the outlook remains bullish for the housing sector, and so it would be surprising if today’s report for starts reveals a sharp contrast with the industry’s expectations.
US: Initial Jobless Claims (1230 GMT): Another key update for evaluating the state of the economy ahead of today’s Fed decision is one of the more reliable leading indicators: the weekly updates on new filings for unemployment benefits. The news on this front has been encouraging lately and today’s release is on track for more of the same.
Econoday.com’s consensus forecast sees no change for claims in the week to September 12 against the previous week. Holding steady at 275,000 (seasonally adjusted) would certainly be good news as that level is close to the four-decade low of 255,000 that was touched back in mid July.
No change for this leading indicator would also help reduce concern that the weaker-than-expected increase in payrolls for September is the start of deeper troubles for the labour market.
Today’s update, in summary, is expected to provide more cover for the monetary hawks, if only on the margins. No change in claims would certainly offer one more clue for thinking that tighter monetary policy is at least a plausible outcome for the news event du jour.
US: Federal Reserve Quarterly Forecasts (1800 GMT): The binary decision on raising interest rates - or not - is the main focus for today’s Federal Reserve policy announcement and subsequent press conference, but don’t let the media circus overwhelm the numbers.
The central bank also releases its quarterly dose of economic forecasts. Regardless of the outcome for today’s policy decision, we’ll learn a lot about Fed expectations by looking at the revised round of macro guesstimates in the central tendency table.
At the top of the list for today’s data update: How does the Fed’s 2016 GDP forecast compare with June’s estimate for a 2.4-2.7% growth rate? In the previous release of quarterly estimates, there was virtually no change in the forecast band for next year’s projected gain. Will the Fed maintain that outlook in the wake of recent downward revisions for global growth?
The OECD this week, for instance, cut its forecast for global economic growth in 2016 to 3% against the previous 3.6% estimate. “Global growth prospects have weakened slightly and become less clear in recent months,” OECD chief economist Catherine Mann told Reuters. She added that “raising interest rates now would remove uncertainty in the markets.”
Maybe so, but can the Fed raise rates while lowering its outlook for economic growth? Hold that thought as we wait for a new installment of guidance from the monetary mavens in Washington.
Disclosure: Originally published at Saxo Bank TradingFloor.com