Data Gives Yellen an Out Not to Raise Rates

Data Gives Yellen an Out Not to Raise Rates

Contrasts in the data could prolong disagreements among policymakers, who have been divided since the middle of the year on the urgency and timing of the next rate hike.

Retail sales fell 0.3 percent in August and the producer price index, one indicator of inflation, was flat and showed no gains over the prior year.

“Consumers are taking it slow in the third quarter,” said Chris Christopher of IHS Global Insight.

On the other hand, the September manufacturing activity indices for the New York and Philadelphia Fed regions both improved, shooting up 11 points to 12.8 in Philadelphia and rising to -1.99 points in New York, still in contraction territory after a reading of -4.21 in August.

“In short, mixed data,” Jim O’Sullivan, chief US economist at High Frequency Economics, wrote in a note to clients. Six-month outlooks for the two regions appeared to crisscross, rising in New York but falling in Philadelphia, he observed.

Weekly claims for unemployment insurance, seen as an indicator of the prevalence of layoffs, were barely changed at 260,000, continuing an unbroken 80-week streak below 300,000, the longest stretch since 1970, according to the Department of Labor.

That pointed to continued strength in the jobs market.

But the Commerce Department also reported Thursday that business inventories had been flat in July while analysts had forecast a 0.1 percent rise.

The new numbers continued an overall picture of indicators which portray US economic activity levels as being not quite on track but not stuck in the mud either.

Inflation hawks who support an interest rate rise by the Fed point to the low unemployment rate of 4.9 percent and steady job creation.

Doves, such as Fed Governor Lael Brainard, are likely to be supported by Thursday’s data in arguing that inflationary pressures do not appear to exist and that, claims of full employment notwithstanding, job markets have considerable slack remaining.

While successive data releases are likely to continue fueling disagreements among policy makers, the outcome next week appears to be in less doubt, with investors anticipating that US rates will remain unchanged when the Fed concludes its two day meeting on Wednesday.

“Stick a fork in the Fed: They’re done!” wrote Jason Schenker, president of Prestige Economics. “We expect no rate hikes this year.”

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.