by Chris Becker
One of the main thresholds the Fed is looking at before it jumps into a tightening cycle is the personal consumption expenditure or PCE print, which on Friday night surprised to the upside. From USNews:
Disposable personal income climbed 0.5 percent for the fourth consecutive month of growth, according to a report released Friday by the Bureau of Economic Analysis.
The uptick in wages seems to have contributed to stronger personal consumption expenditures; such consumer spending gained 0.3 percent in July.
Some part of the real increase in PCE can be put down to lower domestic petrol (gas) prices – take that out and its a solid 1.2% gain but not really enough to excite wage growth and with dour consumer sentiment, even with lower unemployment again, the gains are anemic.
So what’s got the hawks excited? On the weekend at the central bank talkfest at Jackson Hole, Wyoming, Fed Vice Chair Stanley Fischer suggested the “impressive” growth of the domestic economy should make the Fed prepared to raise interest rates soon.
More from Calculated Risk:
From Binyamin Appelbaum at the NY Times: Fed Official Fischer Leaves Door Open for September Rate Increase
Mr. Fischer said the Fed was preparing to raise interest rates soon because of the “impressive” growth of the domestic economy. He suggested that the recent volatility of global financial markets could cause the Fed to hesitate, but only if it persisted.
“We haven’t made a decision yet, and I don’t think we should,” Mr. Fischer said in an interview with the cable network CNBC. “We’ve got time to wait and see,” because the Fed’s policy-making committee does not meet until Sept. 16 and 17.
…
Mr. Fischer also emphasized Friday that the Fed would not wait until all of its questions were answered. Some amount of uncertainty is inevitable. “When the case is overwhelming, if you wait that long,” he said, “then you’ve waited too long.”
And what’s the case? Well, last week’s revised GDP print at a very solid 3.7% increase for the June quarter – which was mainly due to an increase in inventories, rising domestic demand and solid business investment numbers – is being matched by a brightening employment picture. Initial weekly jobless claims recently printed below 300,000 for nearly six months in a row now, with the headline unemployment rate almost back to pre-GFC conditions:
But the inflation genie remains fast asleep as core inflation cannot break free of its glidescope:
While Fischer’s remarks may have ruffled some feathers for a September rate increase, markets are still discounting the possibility by over 60% with the more likely timing being December for a confidence crush, or better still in early 2016.
Whatever the case, the outlook for the Australian dollar from here is one of down, down down. ANZ recently cut their forecasts for the Pacific Peso, targeting 68c vs the USD by the end of the calendar year. Sounds about right, Fed increase or no.