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Fed enters blackout period with markets unconvinced of another hike

Published 09/08/2017, 10:50 AM
Updated 09/08/2017, 11:19 AM
© Reuters.  Markets will watch data for final adjustments to rate hike expectations

Investing.com – The Federal Reserve will officially enter its blackout period, where officials no longer make public appearances or grant interviews, on Saturday, leaving markets to only have recourse to data in the run up to two-day policy decision meeting ending on September 20.

New York Fed president William Dudley took a less hawkish stance than previously on Friday when he admitted that the call on further rate hikes was up in the air.

Just last month he had said that he expected to raise rates once more this year.

However, he recognized on Friday that there was a balance between current economic growth and a level of inflation that was below target.

“I think it's too soon to judge exactly the timing of when the next rate hike might occur,” Dudley admitted in an interview Friday with CNBC.

“But I think the path is clear that of short-term rates are going to move gradually higher over time,” he added.

In other recent Fed appearances, Philadelphia Fed president Patrick Harker made no comments on the economy or monetary policy Friday at the New Perspectives on Consumer Behavior in Credit & Payments Conference.

Kansas City Fed president and known hawk Esther George repeated Thursday that the U.S. economy was overdue for rate hikes to continue.

George further confirmed that the U.S. central bank had begun to discuss “very explicitly” how to begin the unwinding of the balance sheet.

“This approach is one that will be gradual, it will be systematic, and I think it will be pretty well-telegraphed,” she explained.

Also speaking late Thursday, Cleveland Fed chief Loretta Mester reaffirmed her belief that further tightening was needed.

“If economic conditions evolve as anticipated, I believe further removal of accommodation via gradual increases in the Fed funds rate will be needed and will help sustain the expansion,” Mester said.

“I see this consistency as a positive in that it underscores our systematic approach to promoting our policy goals and it removes policy ambiguity at a time when uncertainty seems to be rising on other fronts,” she explained.

Although markets do expect the Fed to announce the beginning of the end of bond purchases in September, they remain skeptical that the central bank will be able to follow through with their projection to raise rates once more this year.

Fed fund futures put the odds of a December hike at around 35%, according to Investing.com’s Fed Rate Monitor Tool.

In fact, the probability of the next increase doesn’t even pass the 50% threshold until the June 2018 meeting.

September’s meeting will provide updated economic projections that include the dot-plot that maps out, anonymously, individual Fed forecasts for future rate hikes, so markets will be watching to see if policymakers have pulled back their own expectations for future moves.

Data to watch

In the meantime, and with Fed officials to remain silent until the September 20 announcement, investors will have to analyze the following data points for any adjustments to their outlook for Fed policy:

September 12: July JOLTS (job openings and labor turnover survey), mentioned by Yellen herself as one of the preferred barometers of the health of the labor market, will provide its latest read.

September 13: The August producer price index (PPI) will the measure the change in the price of goods sold by manufacturers and is considered a leading indicator of consumer price inflation (CPI).

September 14: The August CPI number will be key to show the state of price stability with a high reading supporting the Fed’s plans to tighten policy in order to ensure that inflation remains near its 2% target.

Weekly jobless claims will give further insight into the state of the U.S. labor market.

September 15: August retail sales will shine a light on the strength of the American consumer, responsible for 70% of U.S. economic growth.

The September Empire State manufacturing survey will help gauge activity in the New York area and is watched by the Fed for indications of inflation.

August industrial production will provide a reading of the output produced by manufacturers, miners and utilities.

Preliminary data from the University of Michigan for consumer sentiment in September will show the state of the American spending to help gauge the strength of the economy and its possible impact on inflation.

September 19: Import and export prices in August will be kept an eye on for their effect on inflation.

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