Federal Reserve: See you in December!


Nothing is certain, but it’s fair to say that it is highly unlikely that the Federal Reserve will raise interest rates when it meets this week. While various Fed officials have tried to keep the prospect of an increase on the table, a so-so August jobs report, weaker than expected retail sales and still soft manufacturing data combined to push the odds of a hike at below 20 percent, according to the futures market. That means the focus will turn to the Fed’s economic projections, which have been off the mark for most of the past year, and the accompanying statement. When Chair Janet Yellen spoke from Jackson, she noted that the case for a second interest rate increase was “strengthening”. That may be true, but it is clearly not strengthening enough to warrant a move now. Most analysts expect that the central bankers will send smoke signals that the December meeting is not just possible, but likely.

Of course, because this is the Fed, there will be nothing like this: “We can’t raise rates yet and certainly will not do anything in November, just days before the election, but clear your schedules for December 14th, because we plan to celebrate the one-year anniversary of the first rate hike in a decade with another quarter point!” At this pace you might earn one percent on your savings account by the time the NEXT Olympics rolls around in 2018! To put into perspective just how slow this rate tightening cycle is, compare it to the most recent campaign in 2004-2006, when the central bank increased the fed funds rate by a quarter-point five times in 2004, eight times in 2005 and then four times in 2006.

Meanwhile now that Americans finally got a raise after eight years of stagnating incomes, maybe they will start spending with a little more gusto. In its 2015 Poverty and Income Report the Census Bureau said median (the point where half of households fall below and half are above) household income rose by 5.2 percent to $56,516. The good news is that the gains were seen in all regions, across all age groups, and for most ethnic and racial groups. BUT (you know there would be a catch!) even with the bounce, inflation adjusted income remains below the $57,423 in 2007, just before the Great Recession began and is still 2.4 percent less than the peak of $57,909, reached in 1999.

On a more positive note, with the gains in income, the split between workers and companies appears to be narrowing. According to Capital Economics, “At its peak in 2001, labor compensation accounted for 57.7 percent of GDP, but it subsequently fell sharply, hitting a 60-year low of 52.5 percent in the first quarter of 2012.” While labor’s share has been falling due to longer-term trends like structural factors such as globalization and the decline in the power of and membership in unions, the drop accelerated due to the weakness of the post-recession labor market. As the labor market has improved, especially over the past few years, labor’s share of income has started to rebound, “rising to 54.3 percent in the second quarter of this year” and those gains correspond to a drop in the corporate profit share.


  • DJIA: 18,123, up 0.2% on week, up 4% YTD
  • S&P 500: 2139, up 0.5% on week, up 4.7% YTD
  • NASDAQ: 5244, up 2.3% on week, up 4.7% YTD
  • Russell 2000: 1224, up 0.5% on week, up 7.8% YTD
  • 10-Year Treasury yield: 1.69% (from 1.68% week ago)
  • British Pound/USD: 1.3002
  • October Crude: $43.03
  • December Gold:  at $1,310.20
  • AAA Nat'l avg. for gallon of reg. gas: $2.19 (from $2.18 wk ago, $2.30 a year ago)


Mon 9/19:

10:00 Housing Market Index

Tues 9/20:

FOMC Meeting Begins

8:30 Housing Starts

Wells Fargo CEO John Stumpf testifies before the Senate Banking Committee about the 2M unauthorized accounts the bank had opened.

Weds 9/21:

2:00 FOMC Meeting Announcement/Economic Forecasts

2:30 Fed Chair Press Conference

Thursday 9/22:

8:30 Chicago Fed National Activity Index

9:00 FHFA House Price Index

10:00 Existing Home Sales

10:00 Leading Indicators

Friday 9/23: