Economic Update 03/24/14

FED TAPERS, CHANGES CRITERIA FOR A RATE HIKE

Last week, the Federal Reserve disclosed another $10 billion cut for QE3 in April, and a view that declining unemployment would not necessarily prompt interest rate increases. Rather than peg rate hikes on the jobless rate dipping below 6.5%, the Fed will give greater weight to inflation and other economic factors; it sees the federal funds rate at 1% by the end of 2015 and 2% by the end of 2016. Wall Street was startled Thursday by Fed chair Janet Yellen’s verbal guesstimate that the central bank might raise rates about 6 months after the presumed late-2014 end of QE3 (about 6 months earlier than many analysts presume). IHS Global Insight economist Paul Edelstein echoed the prevalent opinion, saying “this could have been a rookie gaffe on Yellen’s part.”

DID COLD WEATHER COOL HOME SALES?

The National Association of Realtors said existing home sales fell 0.4% in February, leading to the slowest annualized sales pace since June 2012. The median sale price was $189,000, up 9.1% year-over-year. Census Bureau data showed a 7.7% rise in building permits in February, but groundbreaking decreased 0.2% last month.

A MINIMAL UPTICK IN CONSUMER PRICES

February saw the Consumer Price Index rise just 0.1% for the second straight month. The core CPI (minus food and energy prices) advanced 0.1% for the third consecutive month. In the past year, the headline CPI is up only 1.1% and the core CPI only 1.6%.

STOCKS TURN NORTH

A 1.37% weekly gain brought the S&P 500 to a close of 1,866.52 Friday. The Dow rose 1.48% on the week to settle Friday at 16,302.77, and the Nasdaq managed an 0.74% advance for the week to 4,276.79.

THIS WEEK: Wall Street will watch private-sector PMIs for China, Germany and the eurozone Monday. Tuesday offers data on February new home sales, the Conference Board’s March consumer confidence index, January’s S&P/Case-Shiller home price index, January’s FHFA housing price index and earnings from Walgreen’s. On Wednesday, the Commerce Department releases a report on February hard goods orders. Thursday brings NAR’s pending home sales report for February, the final government estimate of Q4 GDP, the latest initial jobless claims numbers and earnings from Lululemon, Red Hat, RE/MAX and Accenture. Friday offers the February consumer spending report, the final March consumer sentiment index from the University of Michigan, and Q4 results from BlackBerry.