Case for a Sept fED Rate Hike Remains very Much Intact: Td Economics

Quotes from TD Economics:
- US personal income rose by 0.3% M/M in Dec. Personal spending fell by -0.3% M/M in nominal terms. In real terms, spending fell for both durable (-0.7% M/M) and non-durable goods (-0.1%), while spending on services was flat on the month.
- This is a disappointing report on the surface. While the quarter as a whole was the best one for consumer spending in over eight years, the decline in Dec implies less momentum heading into 2015. That being said, this is the second year in a row with a strong Nov print, followed by a weak Dec. This may simply suggest that consumers are bringing forward traditional holiday spending one month early.
- There were reasons for cheer in this report. A robust gain in real personal disposable income and a sharp upswing in the savings rate suggests that consumers have padded their bank accounts. Moreover, the drop in inflation due to falling consumer energy prices is raising the real purchasing power of consumers just as the labor market is pointing to accelerating income growth. The improvement in wage expectations is evident in both small business surveys and consumer confidence surveys.
- Even with a rising U.S. dollar and a sharp fall in oil prices – an input into so many other goods and services – core PCE inflation has held relatively steady. This gives support to the Federal Reserve’s message of looking through the transitory impact of lower oil. At this point in time, the case for a September rate hike remains very much intact.

Published: 2015-02-02 17:42:00 UTC+00

Case for a Sept fED Rate Hike Remains very Much Intact: Td Economics