Clarksville Weekly Market Snapshot from Frazier Allen for the week of September 18th, 2016

Clarksville, TN – Fed Governor Lael Brainard, a dove, presented her case for why the central bank should delay an increase in short-term interest rates. While her views are her own (not representative of the Fed as a whole), a more hawkish tilt would have raised the odds of a September rate hike.

The key economic data reports were on the soft side of expectations, but were still consistent with moderate growth in the near term. Retail sales disappointed in August. Industrial production unwound a seasonal quirk that boosted July figures. CPI figures surprise slightly to the upside.

Next week, the focus will be on the Fed policy meeting. Momentum for a September hike had been building in late August and Chair Yellen sent a clear signal in Jackson Hole (“the case for an increase in the federal funds rate has strengthened”).

However, the financial markets never fully bought into it and recent economic data have been generally soft (but not horrible). All else equal, the Fed does not want to shock the financial markets with a surprise (although there is still a small chance that it could move).

The wording of the policy statement is expected to suggest that officials remain in tightening mode (that is, looking to raise rates), most likely in December (but the timing will still be data-dependent.

Officials will revise their projections of growth, unemployment, and inflation, and we’ll get a new dot plot (the dots representing officials’ expectations of the year-end federal funds target rate).

Once again, the dots should drift a little lower. Expectations of the long-term equilibrium federal funds rate are also likely to decline. In her press conference, Chair Yellen will explain why the Fed is delaying, but still signal the need to resume normalization at some point.

Important Disclosures

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The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business September 15th, 2016.

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