Strong U.S. Economic Data In Recent Weeks May Push Federal Reserve To Raise Interest Rates

Asian shares moved higher on Monday, boosted by better than expected 1st half 2016 GDP results that were released on Friday and showed China’s first half GDP in 2016 rose to 6.7 percent, beating most estimates and easing concerns about the severity of China’s economic slowdown.

China’s 1st and 2nd quarter year on year GDP growth rates in 2016 was 6.7 percent, according to China’s National Bureau of Statistics.

In the U.S. economists are paying close attention to recent economic data for signs about when the U.S. Federal Reserve may begin raising interest rates.

In December 2015, the U.S. central bank raised interest rates with the federal funds by 0.25 basis points which went from 0-0.25 percent to 0.25-0.50, marking the first rate hike since June 2006.

Since December 2008 during the depths of the Great Recession, the Federal Reserve kept the federal funds rate at 0-0.25 percent to stimulate economic growth and recovery.

Central banks typically raise interest rates during periods of improving economic growth.

The flow of economic data in the U.S. has been largely mixed and global headwinds from the EU (Brexit) over the past few weeks has helped dovish minded policymakers in the Federal Reserve to have the upper hand when determining U.S. monetary policy.

But with a strong U.S. housing market, rising U.S. inflation levels, crude oil stabilizing, signs of improvement in the U.S. labor market, U.S. stock market indexes (Dow and S&P 500) at record highs, and the yield on the 10 year Treasury at an historic low, hawkish policymakers just may have the economic data and momentum to justify their argument for raising interest rates.

Last week, U.S. retail sales figures for June surpassed estimates and grew by 0.6 percent. Economists from briefing.com had a consensus forecast of 0.2 percent.

Inflation data from last week also showed Producer Price Index (PPI) rising 0.5 percent in June, higher than the 0.3 percent consensus forecast from briefing.com.

Consumer Price Index (CPI) inflation data from last week showed a reading of 0.2 percent in June, slightly lower than the 0.3 percent consensus forecast from briefing.com.

Still the Federal Reserve’s preferred inflation gauge, core PCE index, rose to 1.6 percent in May on an annualized basis, up from the revised 1.58 percent in April, and closer to the Fed’s 2 percent inflation target.

On June 28th, the 3rd estimate of U.S. GDP showed an increase of 1.1 percent in the 1Q of 2016, up from 0.8 percent in in the second reading.  The next release of 2nd Q 2016 GDP won’t occur until July 29th.

The June non-farm payroll report exceeded market estimates by a large margin and climbed to 287, 000, beating the consensus estimate of 175,000 from briefing.com and easily surpassing the dismal (revised) 11,000 non-farm payroll increase in May that surprised nearly everyone.

Written By: Johnathan Schweitzer

Schweitz31@gmail.com

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