Economic update: Is the Fed poised to raise interest rates?

Minutes from the April Federal Open Market Committee (FOMC) meeting indicated a June liftoff for an interest rate increase is highly unlikely, but the bias of the Federal Reserve appears to be toward raising rates in 2015.

Data dependency was a hallmark comment in the minutes and last week’s data appeared to support liftoff this year. Headline consumer prices rose 0.1% in April but core prices, excluding food and energy, rose 0.3% and are accelerating at the fastest three-month pace since 2011. The decline in energy prices seems to have little impact on core price pressures. Rising rents and likely soon rising wages should lift core prices and ease Fed deflationary concerns.

It appears first quarter U.S. gross domestic product growth will likely be revised lower this week, reflecting weaker trade data. In our view, subsequent quarters should improve as the one-time issues from the first quarter subside from economic releases.

Flash estimates of purchasing manager surveys outside the United States last week indicated global economic activity might be stabilizing. Reports from China, Japan, and Europe rose slightly from last month’s final readings. None of the measures indicate acceleration, but at least point to easier monetary policy stabilizing activity at these low levels.

Over the rest of the year, global economies should benefit from easier monetary policy and energy importing economies should see some lift to consumer activity from lower energy prices.

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Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.

This information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The organizations mentioned in this publication are not affiliates or associated with U.S. Bank in any way.

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