Federal Reserve: What to Expect From the Upcoming Get-Together

federal reserve

The Federal Reserve confab that starts on Tuesday and ends on Wednesday this week will have Janet Yellen at the helm for the first time. Here’s an overview of what investors can expect from the upcoming get-together of the Federal Reserve board members.

Economic data released in recent weeks looked weak but the Fed will most likely scale back its monthly bond buying program by $10 billion, according to economists at IHS Global Insight. It will most likely keep interest rates low until late next year.

IHS economists Doug Handler, Paul Edelstein and Stephanie Karol expect industrial production to have increased 0.2% in February thanks to a modest rebound in manufacturing coupled with additional utilities output. Housing starts likely rose 3.4% to 913,000 in February.

Extremely cold weather in February likely drove up heating bills, which will show up in February’s Consumer Price Index. However inflation was likely offset by declining gas prices. Headline and core CPI (consumer price index) inflation should both pick up 0.1%. Existing home sales likely fell 2% in February to 4.53 million owing to the weather and dwindling supply of distressed properties on the market, Handler and his colleagues, wrote in a client note released March 14.

Yields on benchmark government bonds have climbed to a six-week peak on improved U.S. labor data and this trend will continue over the next two quarters, according to Jennifer Vail, head of fixed-income; and Dan Heckman, senior fixed-income strategist, with US Bank’s Wealth Management Group. They expect continued improvement in the U.S. economic forecast and QE (quantitative easing) tapering to continue driving Treasury yields higher. Short-dated bond yields will likely stay low because the federal funds rate will likely stay near zero at least through 2015.

With the policy rate holding near zero for the foreseeable future, investors likely continue investing in stocks because of poor bond yields.

The Federal Reserve’s two-day meeting will he followed by the Fed’s customary announcement and a press conference with Yellen. What else can investors expect next week along with the upcoming get-together by the Federal Reserve? A flurry of key economic releases.

On Monday, the Empire State Manufacturing Survey, a poll of manufacturers in the state of New York will be issued by the New York Fed. A low number of new orders suggests longer-term weakness in employment and product shipments. Industrial production and housing data are also due Monday. The Fed’s monthly index of industrial production capacity utilization rates measures the health of the manufacturing, mining, and electric and gas utilities sectors. Higher growth rates tends to translate to higher corporate profits. The NAHB  National Association of Home Builders, NAHB, housing market index measures the demand for housing, an indicator of economic momentum.

The Consumer Price Index, CPI, and Housing Starts are due out Tuesday. The CPI is the most heavily followed monthly measure of inflation because of its influence on interest rates. Investors are very concerned with the ripple effects of housing starts as it reveals the demand for homes and outlook on the home-building industry.

On Wednesday, the Mortgage Bankers’ Association announces demand for mortgages, a key measure for the housing market.

Thursday’s agenda includes jobless claims, the Philadelphia Fed survey and existing home sales. The weekly unemployment data measures the health of the job market and therefore the economy. The Philly Fed survey signals economic growth or lack thereof. Existing home sales counts the number of homes sold during the month, a key gauge for housing demand and economic health.

The only release set for Friday is the Atlanta Fed Business Inflation Expectations report, which is less significant the reports mentioned above.

The Federal Reserve’s upcoming April get-together is scheduled for the 29th and 30th and what to expect at that meeting will likely be announced Wednesday.

By Trang Ho

Federal Reserve

IHS Global Insight (report)
Wealth Management Group at US Bank (report)

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