Market and economic update: Fed dominated last week’s economic data

Federal Reserve news dominated economic data last week. The minutes of the July Federal Open Market Committee meeting seemed to indicate the Fed believes the economy and labor markets are consistently improving and rates may be allowed to rise sooner rather than later.

At the end of last week, the Fed began its annual Economic Symposium in Jackson Hole, Wyo. This year the meeting focused on the labor market. The keynote speeches from the symposium did little to change market expectations but rather confirmed Fed Chair Yellen’s focus on labor market conditions.

European Central Bank (ECB) president Mario Draghi’s speech indicated European governments need to shift to expansionary fiscal policies in coordination with easy ECB monetary policy to stimulate economic demand. We believe the Fed is on a path to react to improving U.S. economic data by raising interest rates in the first half of 2015, perhaps as early as the March meeting.

The ECB will likely continue down the path of modest adjustments to monetary accommodation, but it will look to fiscal spending policies of member countries for the primary stimulus to economic activity.



Economic data in the U.S. continue to point to a stronger economy, while foreign flash Purchasing Managers Index (PMI) data indicate the environment is not quite so positive. Inflation data remain subdued as well, with eurozone data indicating the risk of deflation continues.

The Markit U.S. Flash PMI Index for August jumped to its highest levels since 2010, while data for the eurozone, Japan, and China indicate moderation in the recent expansion. Global economic growth continues to improve modestly, with U.S. strength moderated by some slowing in Europe.

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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. 

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