The Fed headlines busy week of economic news
The Federal Reserve will almost certainly hold its fire again this week and keep interest rates unchanged for a third straight meeting, but economists will be scouring the Fed’s post-meeting statement for clues on a possible hike in June. The Fed meeting highlights a week packed with economic news, including reports on first-quarter growth, business investment and consumer spending.
Business investment has trended down since summer 2014 as oil producers throttled back amid a plunge in crude prices while a strong dollar and weak global growth clobbered manufacturers’ exports. Although factory output has remained sluggish, an index of manufacturing activity showed expansion in March for the first time in six months. Economists expect the Commerce Department’s durable goods report Tuesday to record a 0.5% rise in capital goods orders excluding aircraft and defense — a proxy for business capital spending — partly reversing February’s 1.8% drop.
Consumer confidence has been solid but choppy this year, largely in response to a volatile stock market. Americans’ outlook rebounded along with stocks in March. Since then, equities have climbed higher and job growth has been healthy, but gasoline prices have edged up as well. All told, economists figure the Conference Board will report that consumer confidence ticked down modestly in April to a still respectable reading of 96.
The Fed and its chair, Janet Yellen, have sent cautious signals since March despite the market upturn, noting that global troubles, particularly China’s slowdown, continue to pose risks to financial markets and the economy. Many economists had forecast a June rate increase, but recent weak data on the U.S. economy and inflation have cast even that timetable into doubt. The Fed raised its benchmark rate in December for the first time in nearly a decade but hasn’t budged since. Nomura economist Lewis Alexander still anticipates a June hike and believes the Fed will leave that door open Wednesday. Morgan Stanley says policymakers will hint that a June move is unlikely. Keep a close eye on whether the Fed describes the risks to its outlook as “nearly balanced,” a signal that June is at least on the table.
The economy expanded by just 1.4% at an annual rate in the fourth quarter, and analysts reckon Commerce on Thursday will report growth at half that pace in the first quarter. Besides the weak exports and a pullback in business stockpiling, even previously healthy consumption slowed in the period, partly because of softer spending on utilities in an unusually warm winter.
Outlays for other services, such as health care, have increased moderately. Economists expect Commerce to report Friday that consumption rose a modest 0.2% in March, a bit more rapidly than in the prior three months.