Report may show if Fed’s hawkish streak continues
The two culprits underlying recent stock market volatility have been a spike in wage growth and expectations that the Federal Reserve may raise interest rates more rapidly than anticipated this year as those pay increases spur stronger inflation.
This week’s release of minutes from the Fed’s Jan. 30-31 meeting could shed more light on Fed policymakers’ outlook. Also on tap is the latest reading of existing home sales.
The statement Fed officials released after their late-January meeting was largely interpreted by economists as somewhat “hawkish,” meaning it reflected the view that the economy has strengthened and more rate hikes may be warranted. The statement described job growth, household spending and business investment all as “solid,” an upgrade from the previous appraisal.
While noting that annual inflation remains below its 2% target, the Fed said inflation “is expected to move up this year.” It also said it expects “further gradual increases” in its benchmark short-term interest rate.
Fed policymakers have forecast three rate increases this year, but Barclays Chief U.S. Economist Michael Gapen said the addition of the word “further opens the door to four hikes and likely closes the door on two.”
While Gapen’s assessment was widely shared among economists, the meeting summary, out Wednesday, could clarify policymakers’ thinking. The account, however, won’t weigh in on the recent market turmoil, which began two days after the meeting. The gathering was the last for Fed Chair Janet Yellen. Fed Chairman Jerome Powell took the helm early this month.
Existing home sales trended higher last year, marking their best performance since 2006, but they were volatile and fell 3.6% in December. Low housing inventories have curtailed choices and pushed up prices, making units less affordable, especially for middle-income buyers.
Cold weather in early January also likely chilled sales, Nomura economist Lewis Alexander says.