What if data Fed is watching is not 'dependable'?
Federal Reserve policy makers have emphasized for many months that the timing of its first interest-rate boost in nine years will be “data dependent.” But what if the data are not as dependable as we thought?
This afternoon, the minutes from the Fed’s April meeting will be released, detailing the deliberations of the policy committee following a surprisingly weak first quarter and downbeat March employment report. This unexpected downshifting of first-quarter growth once again encouraged investors to push off the chances of a rate hike my mid-year.
Yet in recent weeks there has been a movement to question whether there is some statistical quirk behind what seems like an annual ritual of soft first-quarter economic performance in the U.S. After some academic economists started raising questions, the San Francisco Fed this week
lent some weight to the idea that the standard seasonal-adjustment factors applied to the raw GDP data might unfairly penalize the first calculations of economic growth.
The San Francisco Fed paper concluded: “After we apply a second round of seasonal adjustment directly to the published aggregate data, we estimate much faster real GDP growth in the first quarter of this year. We conclude that there is a good chance that underlying economic growth so far this year was substantially stronger than reported.”
We shouldn’t expect to see a direct discussion of such adjustments in today’s Fed minutes release. But any indication that Fed Chair Janet Yellen is willing to look through some weak data and anticipate a rebound will keep Wall Street focused on September for a rate hike.
Recall that the Fed has adjusted what it considers its key data levels in the past, such as when unemployment fell below a once-important 6.5% threshold rate and didn’t immediately prompt a policy change. In any case, the markets themselves seem also to be taking weaker numbers with a grain of salt in recent weeks, as Treasury bond yields retain an upward bias even when the numbers have disappointed.
Meanwhile, yesterday’s strong housing data, an upbeat Japanese GDP report, an uptick in European inflation and lift in bond yields there all get filed under the heading of “global growth firming up.” This all fits with the idea that the Fed would like to get moving with the rate “normalization process” before the fourth quarter, and so maybe its standards for what represents economic improvement are being loosened a bit.
The minutes represent a rough description of a discussion that happened over a month ago, so it’s not the freshest input to the investment process. But right now investors are hungry for any clues about when the inflection point will come. There are parts of the corporate landscape, too, where perhaps things look a bit better than we’ve been led to believe.
Cable companies, in the popular narrative, are dinosaurs as the meteorites of a la carte TV and regulatory hostility enter the atmosphere. Yet their status as the incumbent gateway to the Internet for most folks and the resilience of their content bundles has forestalled extinction indefinitely.
Shameless.
