Fed on the Hot Seat


Are you ready for your close up, Janet? All eyes will be on the Federal Reserve Chair Janet Yellen this week, as the central bank conducts a two-day policy meeting. At her press conference, it is expected that Yellen will stress how the economy is improving, after weakness in the first quarter. In fact, despite all of the concerns over a slowdown, there continues to be more evidence of a pick-up in growth. After the better than expected May jobs report, the Labor Department followed up with news that the number of job openings rose to 5.4 million in April, the highest since the series began in December 2000 and openings are up 22 percent from a year ago.

Additionally, the Labor Department reported that employer costs for compensation jumped 4.9 percent from a year earlier in March, matching the previous quarter’s increase. (Wages and salaries climbed 4.2 percent to $22.88 while benefits rose 6.4 percent to $10.61.) This result is stronger than both the average hourly earnings seen in the May employment report and the Labor Department’s employment cost index, but the underlying message in all three is clear: wage growth is accelerating.

The increase may be sinking in…there was a smart rebound in the University of Michigan's consumer confidence index, despite the recent surge in gasoline prices over the past few weeks and retail sales were up broadly in May.

The improving economic data puts the Fed on the hot seat. Since the last meeting six weeks ago, the labor market has improved; consumers have picked up their spending; and core inflation has been steadily rising. Although few expect the Fed to change either the FOMC statement or rate projections at this meeting, economist Joel Naroff says “By the July meeting, there should be little reason, other than the lack of a press conference, not to start raising rates.”

Others believe that the decision to raise rates is important enough for Chairwoman Yellen to wait until the September meeting so that she can outline the strategy during the scheduled press conference. Either way, it is clear that rates are headed higher within the next 90 days.

MARKETS: Uh oh…just when the data are looking up, one market predictor was less sanguine. The AAII Investor Sentiment Survey, which measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months, just flashed a warning signal. As of June 10th, pessimism surged to highest level in nine months (32.6%) and optimism plunged to a two-year low (20%). The conventional wisdom is that when sentiment shifts among ordinary schlub investors like us, the market is likely to do the exact opposite thing. To wit, the day that this report was released, the stock market staged a broad rally! Meanwhile, despite the best efforts of global central banks to maintain calm in the fixed income markets, animal spirits are trumping policy initiatives - there continue to be big swings.

  • DJIA: 17,898, up 0.3% on week, up 0.4% YTD
  • S&P 500: 2094, up 0.06% on week, up 1.7% YTD
  • NASDAQ: 5,051 down 0.3% on week, up 6.7% YTD
  • Russell 2000: 1265, up 0.3% on week, up 5% YTD
  • 10-Year Treasury yield: 2.39% (from 2.4% a week ago)
  • July Crude: $59.96, up 1.4% on week
  • August Gold: $1179.20, up 0.9% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.80 (from $2.75 wk ago, $3.66 a year ago)


Mon 6/15:

8:30 Empire State Manufacturing

9:15 Industrial Production

10:00 Housing Market Index

Tues 6/16:

8:30 Housing Starts

FOMC Policy meeting begins

Weds 6/17:

2:00 FOMC Policy Decision/Economic Projections

2:30 Janet Yellen Presser

Thurs 6/18:

10:00 Philly Fed Index

Fri 6/19: