Markets & Finance

Vital Signs: Fed's Outlook for Growth and Inflation


On deck: the Federal Reserve meets, existing and new home sales, home prices, fourth-quarter GDP

It's going to be an interesting week, especially for the markets. The headline events investors will have to digest include the Federal Reserve's policy meeting, a first look at fourth-quarter economic growth, and earnings reports from more than 130 companies in the S&P 500 stock index.

The Fed's two-day meeting on Tuesday and Wednesday will be unusual because the policy statement to be released at 2:15 p.m. on Wednesday will essentially contain no decision on interest rates. The Fed’s Federal Open Market Committee (FOMC), which has authority over interest-rate decisions, has already announced it will keep it's target for the federal funds rate in a range of 0% to 0.25% for the foreseeable future.

The Fed's new policy of "credit easing," as laid out by Chairman Ben Bernanke in a speech on Jan. 13, involves the size and composition of assets on the Fed's balance sheet. The responsibility for those decisions lies with the Fed's Board of Governors, and no formal voting process by the larger FOMC, which includes five of the Fed's 12 district presidents, is required. Any statement of changes or new developments in the operation of this "credit easing" strategy are unlikely to come from the FOMC. The Jan. 28 statement may be most interesting for how it describes the FOMC's views on current and expected economic growth and inflation. Worries about deflation are creeping into policy discussions.

The growth assessment, coming only two days before the Commerce Dept.'s first estimate of fourth-quarter real gross domestic product on Friday, will certainly be downbeat. Market expectations are for real GDP to contract by 5%, with forecasts ranging from -4% to -7%. Moreover, very weak December readings for retail sales, industrial production, and employment indicate GDP began the first quarter at a low level compared to the fourth quarter. That pattern suggests another sizable contraction this quarter, as businesses accelerate their cutbacks in capital spending and try to pare down excessive inventories.

Increasingly gloomy prospects for profits are one factor weighing heavily on capital spending plans. By the end of the week, more than 40% of the S&P 500 companies will have reported their fourth-quarter earnings. Estimates continue to head south, with analysts now anticipating a 20% decline in earnings per share compared with a year ago, according to Thomsom Reuters. On Jan. 1, analysts expected a 1.2% decline. Losses continue to be especially broad, with seven of the ten major industry sector expected to post declines. Moreover, despite the financial sector's relatively easy year-ago comparison, given last year's enormous losses, financials are once again expected to post the biggest losses of any sector. Current projections look for a 98% plunge.

Here’s the weekly economic calendar, from Action Economics:

Top Economic Reports

Reports

Date

Time

For

Median Estimate

Last Period

Leading Indicators Index

Monday, Jan. 26

10:00 a.m.

December

-0.3%

-0.4%

Existing Home Sales (Millions)

Monday, Jan. 26

10:00 a.m.

December

4.450

4.490

Consumer Confidence Index

Tuesday, Jan. 27

10:00 a.m.

January

38.0

38.0

Durable Goods Orders

Thursday, Jan. 29

8:30 a.m.

December

-1.3%

-1.5%

New Home Sales (Millions)

Thursday, Jan. 29

10:00 a.m.

December

0.400

0.407

GDP (Advance)

Friday, Jan. 30

8:30 a.m.

Q4

-5.0%

-0.5%

GDP Chain Price Index (Advance)

Friday, Jan. 30

8:30 a.m.

Q4

2.1%

3.9%

Employment Cost Index

Friday, Jan. 30

8:30 a.m.

Q4

0.7%

0.7%

Chicago Purchasing Managers Index

Friday, Jan. 30

9:45 a.m.

January

34.2

35.1

Consumer Sentiment Index (Final)

Friday, Jan. 30

9:55 a.m.

January

61.9

61.9

Other Reports and Events

Reports/Events

Date

Time

For

Dallas Fed Survey

Monday, Jan. 26

10:30 a.m.

January

ICSC-UBS Store Sales

Tuesday, Jan. 27

7:45 a.m.

Jan. 18-24

Johnson Redbook Weekly Store Sales

Tuesday, Jan. 27

8:55 a.m.

Jan. 18-24

S&P Case Shiller Home Price Index

Tuesday, Jan. 27

9:00 a.m.

November

Richmond Fed Survey

Tuesday, Jan. 27

10:00 a.m.

January

Federal Reserve FOMC Meeting (Day 1)

Tuesday, Jan. 27

Mortgage Applications

Wednesday, Jan. 28

7:00 a.m.

Jan. 18-24

Federal Reserve FOMC Meeting (Day 2)

Wednesday, Jan. 28

2:15 p.m.

Statement

Initial Unemployment Claims

Thursday, Jan. 29

8:30 a.m.

Jan. 18-24

Kansas City Fed Survey

Thursday, Jan. 29

11:00 a.m.

January


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus