Federal Reserve minutes may give a hint on March increase

Since Federal Reserve Chair Janet Yellen told Congress last week that a March interest rate increase is at least on the table, the search is on for clues as to whether the Fed is likely to make a move that soon. Minutes of the Fed’s early February meeting, out this week, will be Exhibit A. A light week of economic news also features reports on new- and existing-home sales.

Although Yellen didn’t tip her hand in testimony before the Senate banking committee, she did say that “every meeting is live,” including the Fed’s next gathering March14-15. Investors remain complacent, with fed fund futures giving just 17 percent odds of a rate increase in March and 47 percent in June. But some encouraging economic data last week increased the chances of Fed action, economists say, including strong pickups in inflation and retail sales. The Fed raised its benchmark short-term rate in December for the first time in a year. Minutes of the Jan. 31-Feb. 1 meeting, out Wednesday, could signal whether another move is imminent.

Many economists also expect the meeting summary to reveal a discussion among Fed policymakers about when to start shrinking the Fed’s bloated balance sheet. During and after the financial crisis, the Fed bought more than $3 trillion in Treasury bonds and mortgage-backed securities to push down long-term interest rates. Now that the economy is healthy enough to begin raising short-term rates, some Fed policymakers believe the next step is to shrink the Fed’s holdings, though last week Yellen gave no hint that’s coming soon.

Rising interest rates could modestly restrain a housing market that has been one of the economy’s bright spots. But while existing-home sales hit a postrecession high last year, limited inventories have tempered the gains. In December, home sales fell 2.8 percent amid a 3.6-month supply of homes, the lowest since 2005, Nomura economist Lewis Alexander said. A six-month stockpile is considered balanced. Yet noting that pending home sales and mortgage applications have been solid recently, Alexander said he expects a rebound in home sales for January. Economists expect the National Association of Realtors to report a 1.1 percent rise in sales in January to a seasonally adjusted annual rate of 5.6 million.

One reason existing-home supplies have been skimpy is the inadequate construction of new homes, partly because of a labor shortage. In December, new-homesalesfell10.4percent.Yet Alexander pointed out that homebuilder sentiment remains high, and the market is due for a bounce-back. Economists expect the Commerce Department on Friday to report a 7.3 percent increase in new-home sales last month to a seasonally adjusted annual rate of 575,000.