Will the latest consumer price inflation figure from the USA, give the green light to the FOMC to raise interest rates at their December meeting?
From various USA sources on Friday, we receive the latest: CPI data, advanced retail sales and the university of Michigan confidence survey. A trinity of highly valuable, yet distinctly different metrics that will shine a light into the various crevices of: growth, confidence and the performance, of various aspects of the USA economy. And with the FOMC’s slightly dovish minutes just published, which may have altered the view many investors have; in relation to the Fed’s ambitions to engage in quantitative tightening and raising interest rates in 2018, these figures will be closely monitored, for any signs of structural weakness, in any areas of the USA economy.
CPI is forecast to come in at 2.3%, ahead of the 1.9% recorded for the month of August. The FOMC minutes suggested that certain regional Fed heads wanted to see inflation above the target of 2% inflation, before they could deliver a unanimous vote, to raise the interest rate in the last FOMC meeting of 2017, scheduled for December 12-13th. If the inflation forecast is met on Friday, then dollar investors would immediately translate the result as evidence that a rate rise will happen, furthermore, they may believe that the FOMC has enough ammunition to engage in the program of QT and rate rises for 2018, mentioned in previous meetings and minutes.
Advanced retail sales provide an excellent insight into the overall confidence being felt by USA consumers; are they placing forward orders for, in particular, large ticket items? The USA economy is two thirds driven by consumer spending, therefore any slowdown is generally concerning to monetary policy makers. The forecast is for a reading of 1.7% growth for September, which would represent a major reversal, from the -0.2% figure registered for August.
The university of Michigan confidence index, mightn’t be as respected as the Conference Board Consumer Confidence Index, however, it’s still closely monitored by investors, given that it’s historically one of the most established confidence readings in the USA. UMich figures have a history of preceeding a turning in overall GDP. The headline figure is simply calculated by subtracting the percentage of unfavorable replies, from the percentage of favorable replies. The reading for September came in at 95.1, the October forecasts is for 95.
KEY ECONOMIC PERFORMANCE INDICATORS FOR THE USA.
• GDP growth 3.1%.
• Unemployment 4.4%.
• CPI (inflation) 1.9%.
• Government debt v GDP 106%.
• Wage growth 2.95%.
• Key interest rate 1.25%.
• Composite PMI 54.8.
• Durable goods orders 1.7%.
• Consumer confidence 95.1.
• Retail sales YoY 3.2%.
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