Again the FOMC is Front and Center! and it’s not WHAT they say, so much as how they say it.
Today is an FOMC interest rate decision /policy statement day. Although virtually no one expects them to announce a rate increase, their policy statement will be scrutinized for clues as to how comfortable they are with raising rates in the future.
For those Federal Reserve Governors on the committee looking for any scrap to delay the inevitable interest rate hikes as long as possible; for some that would mean infinity, the data so far this week has been right in their wheelhouse.
Both the Empire State manufacturing report and Industrial Production were a miss, with the former slipping back into negative territory for the 2nd time in 3 months.
The Empire State report was a “head scratcher” for many economists as it left Q2 virtually flat, trailing behind the +8ish reading for Q1.
While it’s only 1 regional FED report, but it certainly flies in the face of both the “weather induced” excuse for underperformance in Q1 as well as the “manufacturing is picking up steam” mantra of those touting economic progress the last 6 to 8 quarters. FYI, the Philly FED report is tomorrow morning, giving us another early glimpse of manufacturing activity in June.
Industrial Production for May not only not only missed consensus, coming in at -0.2%, but April was revised lower to -0.5% giving us 4 negative readings in the last 6 months. The one bright spot in the report, cars and trucks, confirms much of what we have seen from retail sales.
The consumer is spending money to update its 11 year old fleet of basic transportation, but not spending much on anything else.
As far as Equity Market performance in the near term, it makes perfect sense that the recovery off the lows Monday, and the Tuesday’s rally owe a big assist to the “dove friendly” data so far this week.
There’s no doubt large swathes of the market are still heavily addicted to ZIRP and if you’re in the “ZIRP FOREVER” flank of FED members and watchers, the data so far this week couldn’t have been scripted any better.
OK, Stop it with the conspiracy theories!!
Where does this leave us?
FOMC Interest Rate Decision
With almost 1000% certainty the FED will not give us a “surprise” rate hike this afternoon. Under the theory that the initial hike will only happen at a meeting that is followed by a Yellen press conference, that brings us to September or December.
No doubt you’ll hear the “data dependent” dictum multiple times before the end of the day, and we can only hope that the Q&A following the presser drills down on specific trigger points for upcoming economic data.
Oh, By the way, There is the annual Russell Index Rebalancing this Friday, and yes it is potentially a big deal.
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