US: Latest economic data supports Fed rate hike - Wells Fargo

According to analysts from Wells Fargo, economic data during the last days has been supportive of a rate hike from the Federal Reserve. They expect a hike at the next meeting and two more during 2017.

Key Quotes: 

“The stream of economic data picked up this week after light data last week and a tumultuous few days following the U.S. election. On the household front, retail sales started Q4 with a bang, rising 0.8 percent on top of an upwardly revised September reading.”

“Output in the manufacturing and mining sectors, better bellwethers of production trends, increased over the month. Durables production was up 0.4 percent, aided by another strong month of production in the auto sector, while nondurable goods output was flat. Even with the gains of recent months, the trend in manufacturing remains largely sideways; total manufacturing production is only even with its year ago level.”

“Inflation continued its slow but steady rise toward the Fed’s 2 percent target in October. Although the Producer Price Index (PPI) missed in October, the Consumer Price Index (CPI) rose a strong 0.4 percent in the month, bringing the year-over-year pace to 1.6 percent.”

“On balance, the economic data this week were supportive of a Fed rate hike in December. U.S. consumers flexed their muscles last month, and although the factory sector remains short of escape velocity, it appears to have largely avoided an outright freefall. On the inflation side of the Fed’s mandate, prices are accelerating amid steady core services inflation and fading energy effects. Fed funds futures now suggest a more than 90 percent chance of a rate hike in December, and market expectations have shifted closer to the median dot plot response for 2017. In our view, the Fed will seize the opportunity and raise the fed funds rate in December, followed by two more hikes in 2017.”