Clarksville Weekly Market Snapshot from Frazier Allen for the week of June 14th, 2015

Clarksville, TN – Economists began the week wondering why consumers hadn’t spent the windfall from lower gasoline prices. By the end of the week, we had a partial answer. Retail sales rose strongly in May, as expected. More importantly, we had upward revisions to the data for March and April.

The Bureau of Census also released its quarterly survey of services. These two reports paint a brighter consumer spending outlook and imply an upward revision to the estimate of 1Q15 GDP growth (the second estimate showed a -0.7% annual rate, but should be revised to show a much more modest decline or perhaps a slight increase).

Despite the improved economic data, financial markets remained volatile, partly reflecting concerns about Greece and the Fed. Negotiations between Greece and the IMF reached an impasse, adding to concerns that the country will not be able to meet debt payments at the end of the month. European bond yields were choppy, which fed through to U.S. Treasuries.

Next week, the focus will be on the Fed. The Federal Open Market Committee policy announcement and the Fed’s Summary of Economic Projections are due at 2:00pm Wednesday. Fed Chair Janet Yellen’s press conference will follow at 2:30pm. The wording of the policy statement should be little changed (recall that in late April, the FOMC blamed soft first quarter growth on “transitory factors”).

Fed officials are expected to revise their growth forecasts a bit lower. Expectations of the appropriate year-end level of the federal funds target rate (the “dots” in the dot plot) ought to move a little lower.

In her press conference, Yellen is not expected to provide any clear guidance on the precise timing of the initial rate hike. Most likely, the Fed will want to see evidence of a rebound in growth, as well as further evidence of economic strength beyond that – which still leaves September as the most likely starting point (still data-dependent).

However, in recent speeches, senior Fed officials have continued to stress that the timing of the first move is much less important than the pace of subsequent moves – and Fed tightening is expected to be very gradual over the next few years.

Important Disclosures

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The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 11th, 2015.

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