The week ahead

yellen
Federal Reserve Chair Janet Yellen

Frankly, Venusian Brain Garglers could overrun the East Coast, and Wall Street’s sole focus this week will still be on the Federal Reserve Open Market Committee’s announcement at 2:00 on Wednesday.

The Fed is widely expected to push its key fed funds rate up to 0.25% from nearly zero, the first rate hike since 2006. If the fed does hike, Wall Street will probably throw a mild tantrum. Then it will pick up the shattered pieces of its life and learn to live with a 0.25% interest rate and the prospect of higher rates in the future.

If the Fed doesn’t hike — and there’s honestly no compelling reason for it to do so — expect a larger tantrum. As much as Wall Street hates higher interest rates, it hates uncertainty even more. By backing off a rate hike, the Fed would be signaling that the economy is worse than it appears, both in the U.S. and abroad.

For those with a quaint interest in other events going on this week:

  • Tuesday is the Consumer Price Index, the government’s main indicator of inflation. (The Fed’s preferred inflation index is the core personal consumption expenditures price index (PCE). Analysts expect a 0% change in the index, thanks to low energy prices. The core index, which throws out food and energy — two items the Fed can’t influence — is expected to rise 0.2%. Any large surprise to the upside would cement a Fed rate hike.
  • If you want to while away the time on Wednesday, you can peruse housing starts, industrial production and, most particularly, the EIA petroleum status report. With oil prices swooning below $35 a barrel, Wall Street will be watching the most recent petroleum status report carefully.
  • Thursday is the Leading Economic Indicators which, of late, have been buoyed by the stock market. That won’t be the case this month. As of November, the LEI was auguring higher economic growth in 2016.
  • Friday is the Baker-Hughes rig count, another important oil-patch health indicator. Lower rig counts means that the energy industry is contracting, which one should expect it is.

 

 

 

 

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