Fed minutes may clarify odds of rate hike
The Federal Reserve last month appeared to leave the door open to a September interest rate hike, but it was characteristically cryptic in its post-meeting statement. Minutes of its July meeting, slated for release this week, could shed more light on the chances the Fed will lift its key rate for the first time this year. The week’s economic news also features reports on housing starts, inflation and industrial production.
Housing starts have steadily picked up, fueled by a low supply of existing homes and solid job and income growth. But starts rose a substantial 4.8% in June and “some near-term payback” is likely in July, says Nomura economist Lewis Alexander. Economists expect the Commerce Department to report Tuesday that housing starts dipped 1.1% last month to a still-healthy seasonally adjusted annual rate of 1.18 million.
On Tuesday, the Labor Department releases its inflation reading for July. Low gasoline prices have kept consumer price increases well below the Fed’s target, and pump prices fell last month after generally moving up the first half of the year. But core inflation, which the Fed monitors more closely and excludes volatile food and energy costs, has been climbing gradually. Further increases, along with other signs of an improved economic outlook, could give the Fed enough ammunition to boost interest rates in coming months. Economists estimate headline inflation was unchanged in July but core prices increased a moderate 0.2%, keeping the annual increase at a solid 2.3%.
Industrial production has been weak for nearly two years because of a sluggish global economy and strong dollar that have clobbered exports, and an oil industry slump that has stifled drilling and related demand for steel pipes. But the dollar broadly has weakened this year while oil prices have risen, raising hopes that the sector is stabilizing. Factory output increased sharply in June on strong auto production. And economist Stuart Hoffman of PNC Financial Services Group, says, “The manufacturing slowdown has ended.” That proclamation will be tested as soon as this week. Economists expect the Fed to report a modest 0.2% rise in July industrial production.
The main course for economy watchers comes Wednesday, with the release of minutes of the Fed’s July 26-27 meeting. Its post-meeting statement was unexpectedly bullish after booming June job gains offset weak May numbers and the market sell-off unleashed by the United Kingdom’s Brexit vote had more than reversed. The Fed said “near-term risks to the economic outlook diminished,” stoking speculation that it could lift interest rates as soon as September. But the Fed gave no clear signal, and economic growth has been feeble for three quarters. The minutes could offer clues on the odds of a September move.
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