Fed minutes could give clues on June hike

A busy week of economic news should shed light on whether a June interest rate increase is on or off the Federal Reserve’s table. Besides the Fed’s April meeting minutes, a batch of reports will provide key readings on inflation, industrial production and the resurgent housing market.

A key measure of inflation had shown signs of picking up before fading in March. The Fed is waiting for sluggish inflation to accelerate before lifting its benchmark rate again after hoisting it in December for the first time in almost 10 years. Overall inflation likely accelerated in April because of higher gasoline prices. But the strong dollar is keeping imports cheap and holding a lid on core inflation, which the Fed monitors more closely because it strips out volatile food and energy items. On the other hand, the 5% unemployment rate is making it tougher for employers to find workers and nudging up wages, exerting some offsetting upward pressure on inflation, says Lewis Alexander, chief U.S. economist of Nomura. All told, economists expect the Labor Department on Tuesday to report a modest 0.2% rise in core inflation that slightly lowers the annual increase to 2.1%.

The housing market has been one of the economy’s pillars. Housing starts fell in March after warm weather pulled forward some activity to the previous month. The market likely returned to a more sustainable pace of growth in April, economists say. Alexander cites improving labor markets, low mortgage rates, pent-up demand from Millennials and a low supply of existing homes for sale. The Commerce Department is expected to report a 2.9% increase in housing starts to a 1.1 million seasonally adjusted annual rate.

The industrial sector, by contrast, has been the biggest drag on growth as the muscular greenback and weak global economy constrain exports and low oil prices continue to dampen energy investment. With both the dollar and crude prices stabilizing recently and auto sales going strong, factory activity edged back into expansion territory the past two months. But a declining oil rig count is still curtailing mining production, notes PNC Financial Services Group. Economists expect the Fed to report a decent 0.3% rise in industrial production in April that partly reverses sharp declines the previous two months.

At its April 26-27 meeting, the Fed provided a mixed review of the economy. It  acknowledged reduced risks from overseas and volatile financial markets but declined to assess the risks to its outlook for a third straight meeting. As a result, many economists believe a mid-June rate increase  is unlikely, especially with a British vote on whether to exit the European Union the following week. The meeting minutes out Wednesday could indicate whether a hike is at least possible.