Investors are focused on the outcome of the Federal Reserve’s two day meeting that wraps up today with questions still lingering in the market about how soon the U.S. central bank plans to raise interest rates with the federal funds rate that has remained just above 0 percent since December 2008 during the depths of the global recession.
The Federal Reserve hasn’t hiked interest rates since 2006 and expectations are rising for a slow but gradual rate hike sometime in late 2015 or early 2016 as the U.S. economy, job market, and inflation rate show improvement.
The Fed won’t release their rate decision until 2:00 pm EST and no press conference is scheduled until the next Fed meeting in June.
The following press conference after June won’t come until September.
The two most important data points that Fed committee members examine when deciding if the U.S. economy is ready for a rate hike, according to the Fed’s dual mandate, are employment and the inflation level- as measured by the annual change in the price index for personal consumption expenditures, or PCE.
The Fed Reserve has a 2 percent inflation target and recent weakness with PCE inflation in late 2014 and the first quarter of 2015 has pushed back expectations about when an interest rate increase will occur.
Federal Reserve committee members are likely to wait for more PCE inflation data before judging that inflation is clearly moving back to the Fed’s 2 percent inflation target.
The wait won’t take long.
On Thursday PCE Prices- Core will be released for the month of March with consensus estimates showing an increase of only .02 percent for the 12 month headline inflation rate compared to a February increase of only .01 percent.
The closely watched 12-month trimmed PCE mean rate increased slightly in February to 1.6 percent from 1.5 percent in January.
Prior to January’s 1.5 percent, the trimmed mean PCE was 1.6 percent for six consecutive months, likely held back by falling gas prices and a rising U.S. dollar.
Weak March Jobs Report and GDP
On April 3rd the Labor Department revealed that the U.S. economy only added 126,000 non-farm payroll jobs in March, the weakest increase since December 2013 while the job numbers for January and February were revised lower by 69,000.
Job gains have averaged 197,000 over the past 3 months.
At 8:30 a.m. EST the GDP report for the first quarter of 2015 will be released.
The market is expecting a 1.0 percent GDP reading for the first quarter of 2015 while the forecast from briefing.com is 0.4 percent.
During the last quarter of 2014 U.S. GDP was revised to 2.2 percent.
The cold weather and West Coast port strike in early 2015 may be to blame for the slowdown along with the other easy scapegoat: a rising U.S. dollar.
Later today at 10:00 pending home sales for March will be released and on Friday the market will get a snapshot into 2nd quarter economic data when the ISM index will be released for April along with Chicago PMI.