USD/JPY

The Federal Reserve should be even more attentive to new economic data as its gradual interest-rate hikes edge it ever closer to a neutral stance, Fed Vice Chair Richard Clarida said on Tuesday.

In a carefully worded speech that comes on the heels of another volatile market drop, Fed Vice Chair Richard Clarida stressed how difficult it is for the U.S. central bank to determine both the neutral interest rate and the maximum level of employment.

"This process of learning... as new data arrive supports the case for gradual policy normalization, as it will allow the Fed to accumulate more information from the data about the ultimate destination for the policy rate," he said.

The Fed has settled into a quarterly rate-hike cycle and is expected to tighten policy again next month. But signs of a slowdown overseas and nearly two months of market volatility - including a sharp selloff last week - have clouded an otherwise mostly rosy U.S. picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

Clarida, who joined the Fed in September, said the central bank should aim to sustain U.S. growth and guard against a rise or fall in inflation away from a 2% target.

"At this stage of the interest rate cycle, I believe it will be especially important to monitor a wide range of data," he said at the Clearing House conference of bankers and market operators in New York. "Risks have become more symmetric and less skewed to the downside" than years past, he said.

In September, Fed policymakers estimated that the "neutral" policy rate - which, theoretically, would neither spur nor curb demand in the economy - was about 3%. They also expected to hike the rate from 2-2.25% currently to a bit above that level by around early 2020, according to the estimates.

But some investors now question whether the Fed will raise rates three or more times in 2019 as planned, or stop the tightening cycle some time in the first half of the year.

On Tuesday, Clarida offered few hints. He said there are "a range of views" among policymakers about where neutral is, and that it "is a matter of judgment." Clarida was focused on inflation expectations among other indicators, and said that while he expects prices to remain anchored at target, he was watching for signs that the Fed's preferred gauge could be "running at somewhat less than 2%."

But overall, the economy's fundamentals and labor market remain "robust" with wage growth picking up, he said, predicting growth will continue at least through the second half of next year marking the longest U.S. expansion on record.

U.S. homebuilding rose in October amid a rebound in multi-family housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5% to a seasonally adjusted annual rate of 1.228 million units last month.

Building permits fell 0.6% to a rate of 1.263 million units in October. The market had forecast housing starts rising to a 1.225 million-unit pace last month.

The struggling housing market is in stark contrast with the broader economy, which has enjoyed two straight quarters of robust growth and an unemployment rate at a near 49-year low of 3.7%. Prolonged housing weakness, together with a relentless sell-off on the stock market could stoke fears over the durability of the economy's strength.

In addition to rising borrowing costs, the housing market is also being squeezed by land and labor shortages, which have led to tight inventories and more expensive homes. Many workers are being priced out of the market as wage growth has lagged.

Tuesday's data also suggested that housing supply is likely to remain tight in the near term. Homebuilding completions in October fell 3.3% to a rate of 1.111 million units, the lowest level since September 2017.

Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.

The stock of housing under construction rose 0.5% to a more than 11-year high of 1.137 million units last month. But the multi-family homes segment made up just over half of housing inventory under construction last month.

U.S. retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, but data for the prior two months was revised lower and the underlying trend suggested that consumer spending was probably slowing down.

Still, the report on Thursday from the Commerce Department showed broad gains in sales ahead of the holiday shopping season, which bodes well for consumer spending and the overall economy as the fourth quarter gets under way.

Retail sales increased 0.8% last month. Retail sales in September slipped 0.1% instead of rising 0.1% and sales in August were also weaker than previously thought.

The market had forecast retail sales increasing 0.5% in October. Sales rose 4.6% from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Data for September was revised lower to show core retail sales rising 0.3% instead of gaining 0.5% as previously reported. Core retail sales fell 0.2% in August rather than being unchanged.

Strong domestic demand and a tightening labor market support views that the Federal Reserve will increase interest rates in December for the fourth time this year. The U.S. central bank last Thursday kept rates unchanged, but said data "indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate."

MyFXspot.com is an independent macroeconomic consultancy with thousands of subscribers all over the world. We provide fundamental research to help our clients make better investing decisions. Our subscribers should expect to get access to:

1Trading ideas (entry, take profit, stop loss)

Forex: EURUSD, GBPUSD, USDJPY, USDCAD, AUDUSD, NZDUSD, EURGBP, EURJPY, EURCAD, GBPJPY, AUDNZD, AUDJPY

Precious metals: GOLD, SILVER

Stocks: S&P 500, DAX, SHANGHAI COMPOSITE

Commodities: WTI OIL

This is a sample publication:

2Investment Clock - great quantitative tool for investors

Different asset classes sectors tend to perform better than others at different phases of the economic cycle. We estimate current phase of the economic cycle and the Investment Clock shows which asset classes have historically outperformed in current phase of the economic cycle according to our research.

3Essential market news, technical and fundamental analysis, reviews of central bank decisions

We provide you regular commentaries on important economic and market issues and events, previews and forecasts of forthcoming data releases resulting from our knowledge, experience and quantitative tools.

4Last but not least

We describe fundamental factors, discuss recent changes in trends, resort to numerous quantitative tools and much more. You are able to take a close look at how we come to our conclusions and decide whether you share our current opinion regarding the market, but at the end of the day, it is you who decides what to do with your capital. That is why we strongly recommend you to conduct your own research and always rely on common sense – nobody knows what might work out for you just as you do.

Monthly

Subscription

$49.90

 
You can cancel at any time
CONTINUE

Quarterly

Subscription

$119.70

per month: $39.90
You can cancel at any time
CONTINUE

Annual

Subscription

$238.80

per month: $19.90
You can cancel at any time
CONTINUE

VAT tax will be added for EU individuals.

Cron Job Starts