Fed Chairwoman Janet Yellen’s Senate testimony yesterday suggested that the central bank is still on track to hike rates later this year, courtesy of the stronger economic trend. But the big day may arrive later than previously assumed. It’s all about the data. “Provided that labor market conditions continue to improve,†the Fed will raise rates when it’s “reasonably confident that inflation will move back over the medium term toward our 2% objective,†she advised. But while the official line tells us to prepare for policy tightening at some point, there’s more talk in some corners that the business cycle is looking shaky again. Huh?
Recent housing data is the leading example at the moment, including yesterday’s monthly update on housing prices via the December report for the S&P/Case-Shiller Home Price Indices. Although prices for the widely followed 20-city index rose through the end of 2014 at a moderate pace and beat expectations, David Blitzer, chairman of the index committee at S&P Dow Jones that publishes the figures, says that “the housing recovery is faltering.†He explains that
While prices and sales of existing homes are close to normal, construction and new home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession.
Blitzer adds that the soft housing data has been accompanied by “favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates and positive consumer confidence.â€
But there are other dark clouds that, for some, look ominous. A Bloomberg story this week, for instance, noted:
A gauge of growth rates for raw materials including cattle hides, tallow, plywood and burlap has been signaling economic contraction since September. The last time the growth rate of the JoC-ECRI Industrial Materials Price Index was falling to these levels, the world was mired in recession. At the same time, the price-tracking Bloomberg Commodity Index is near a 12-year low, with bear markets for more than half of the 22 items it measures.
