2017 Fed rate hike forecast: US economic data perspective


2017 Fed rate hike forecast: What does US economic data suggest? Is US economic stance strong enough for the rate hike in the near future?

24 January, AtoZForex Market experts believe that inflationary trends have appeared in the economy in the recent period. As a result of such conditions, the chances of an extra interest rate hike by the Federal Reserve in the first half of the current year is likely, according to experts’ opinion. Moreover, they believe there is an additional evidence for this outcome.

US economic health at its best?

Earlier last week, markets received additional economic data, which could possibly push the policymakers for the interest rate move in the near term. US CPI m/m figures for December indicated a change of 0.3%. The y/y CPI data came higher-than-expected, hitting 2.1% versus consensus of 1.7%.

Moreover, market experts highlight the industrial production data for December. Production increased by m/m 0.8% in comparison to November’s reading of -.0, 7%. Manufacturing production gained 0.2% versus November’s data of -0.1%. Additionally, the capacity utilization rate for December advanced to 75,5% from November’s reading of 74.9%.

Yet, the most potentially influential data came from the housing market. January’s Housing Market Index appeared at two points lower from December’s reading of 69. However, it still remains at cycle highs. The analysts highlight that the traffic component of the report emerged at 51. This is a very important point here. Experts say that this is the first time in over 10 years that the traffic reading appeared over 50 for two straight months.

Overall, the housing figures from the US signals a very strong level of confidence from the builders. Experts believe that the level of confidence is now at the highest since the sub-prime crisis. They suggest that the Fed’s quarter percentage move in December will more likely support consumer inflation than it will decrease demand. The economic data from the past two months are supporting such hypothesis.

2017 Fed rate hike forecast

In addition to abovementioned, other signs of economic acceleration have emerged last week. The Philadelphia Fed’s Business Outlook Survey serves are an indicator of expected mid-Atlantic economic activity. The reading has advanced to 23.6 from the previous reading of 19.7. For comparison, this data came at -2.9 in July 2016. However, weekly jobless claims emerged lower-than-expected at 234K versus market consensus at 255K.

Given the optimistic trends in the US economic health, market experts foresee the interest rate move by the central bank at the end of Q2.

Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, expressed his concerns in relation to the inflation across the US. He stated that the inflation could spike unless the Federal Reserve raises interest rates faster than the Fed policymakers expect. He has commented:

“Right now I think we are at risk of getting behind the curve, so lately I’ve been an advocate of pushing rates up a little more aggressively than my colleagues.”

Fed policymakers’ consensus stands at three interest rate hikes throughout the current year. Mr. Lacker, who is retiring on 1st of October, has been arguing that the central bank should fight the potential inflation surges with rate hikes. This is despite the fact that the inflation levels have lingered well below the Fed’s 2 percent target.

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