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Housing data, inflation and the Fed

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Housing data, inflation and the Fed

August 18
09:00 2015

Incoming fresh data this week on consumer inflation and housing will collide with the release of minutes of last month’s Federal Reserve meeting and perhaps offer clues as to whether the U.S. central bank will pull the trigger on an interest rate hike next month.

All eyes are on the Fed, of course, as it moves ever closer to its first rate increase in more than a decade. Given that the Janet Yellen-led Fed has said it would like to see further improvement in the economy and price inflation at the consumer level to move up closer to the 2% level that it deems as healthy, the release of the July consumer price index (or CPI), which measures prices U.S. consumers pay for everything from milk to gas, will be closely watched by Wall Street. Investors will also closely eye incoming data on last month’s housing starts and sales of existing homes.

Debate related to the Fed’s rate-hike timetable intensified last week following the fallout from China’s decision to devalue its currency, a move that suggests more severe economic weakness in China and hurts U.S. multinationals that do business there. July housing starts, set for release Tuesday before the opening bell on Wall Street, are expected to edge up 2.2% to 1.2 million annualized units, following a blowout 9.8% jump in June. Alexander, however, is expecting housing starts to dip 8.1% to 1.1079 million units, as he does not see a repeat of the strong starts in June in the Northeast sparked by developers in New York rushing to take advantage of a tax break that expired at the end of June.

The important July CPI reading hits the tape Wednesday, the same day the Fed minutes will be released. Wall Street economists see inflation at the consumer level rising 0.2% for both the month-over-month and year-over-year periods. Core inflation, which strips out more volatile components, is expected to remain steady at an annual pace of 1.8%. July existing home sales will be released Thursday, and economists are expecting a drop of 1.3% to 5.42 million annualized units vs. 5.49 million units sold in June. Nomura’s Alexander expects ongoing momentum in the housing market to push sales up 2% in July to 5.6 million units.