WILL THE FED MAKE A MOVE IN THE FALL?
The Federal Reserve left interest rates alone last week, but its median federal funds rate forecast for the end of 2015 is now at 0.625%. That would seem to suggest multiple adjustments to the key interest rate in the last half of this year, but Fed chair Janet Yellen noted last week that the central bank is looking for “more decisive evidence that a moderate pace of economic growth will be sustained” before making any move. The Fed now projects 2015 GDP at only 1.8-2.0%, down from a range of 2.3-2.7% this spring. Futures markets point to the Fed raising interest rates from historic lows in December, though many economists think the incremental tightening will start in September.1
CPI UP 0.4% IN MAY, BUT INFLATION STILL MUTED
Gas prices soared 10.4% last month, prompting a notable rise in the headline Consumer Price Index. The Federal Reserve might not be too concerned with that one-month advance, however. The core CPI (which strips out energy and food prices) was up only 0.1% for May and just 1.7% year-over-year.2
HOUSING STARTS DOWN, BUILDING PERMITS UP
These volatile indicators moved in drastically opposite directions in May. According to the Census Bureau, building permits rose 11.8% last month to an 8-year peak while groundbreaking declined 11.1%. Starts were up 5.1% and permits up 25.4% from May 2014.3
STOCKS ADVANCE
Rising 1.30% to 5,117.00, the NASDAQ Composite outpaced the S&P 500 and Dow Jones Industrial Average last week. The blue chips added 0.65% in five days to reach 18,015.95 and the S&P 500 rose 0.76% for the week to a Friday settlement of 2,109.99.4
