The Conference Board’s index of consumer confidence increased above expectation to 103 in September from 101.3 a month earlier. Purchases climbed 0.4% in August, again, more than forecasted. Fueled by wage growth, consumers will help the U.S economy muddle through a global slowdown. Adding to the good news, a key measure of inflation firmed a bit, signs of strength in America’s domestic economy that could result in an interest rate increase by the Federal Reserve by the end of this year despite weakness abroad. Because consumer spending accounts for more than two-thirds of the U.S. economic activity, it is reasonable to assume that a rate hike will occur this year. New York Fed President William Dudley is one of the believers. On Monday he said a hike was likely this year and could come as early as October.
Although signs that investors are bringing forward their bets on a rate increase, such as a slight rise in yields on U.S. government debt and the U.S dollar following the consumer spending report, some still remain doubtful that the first rate hike in a decade will take place before 2016. This hesitation from investors is presumably a result of prior mixed signals from FOMC meetings.
Despite the positive signals for consumer spending, inflation continues to run below the Fed’s 2%, contracts to buy previously owned U.S homes fell 1.4% last month and the employment report was weaker than expected. Once again, we are getting mixed signals from the Economy.
By: Medina Jahovic