Fed: Don’t dismiss December – Wells Fargo

Research Team at Wells Fargo Securities, suggests that like the Fed, they have not ruled out the possibility of another interest rate increase this year.

Key Quotes

“While weaker growth in the first half of the year and uncertainty surrounding the U.S. election and Brexit fallout are likely to keep the Fed on hold the next few meetings, we continue to believe the FOMC is more likely than not to raise the fed funds rate before year-end.

The unexpectedly weak Q2 GDP figure and downward revision to the previous two quarters can be traced to more substantial drags from inventories, which we believe have run their course. Underlying growth, on the other hand, has held up comparatively well, with real final sales strengthening to a 2.4 percent annualized rate in Q2.

At the same time, wage pressures are strengthening. Average hourly earnings, employment costs and unit labor costs were all up in the first half of the year relative to 2015. The upward drift is consistent with tightening in the labor market. The pickup in wages and unit labor costs signal that even the recent sluggish pace of growth is sufficient in moving the Fed toward its mandates, which may be difficult for the FOMC to ignore if it is really “data dependent.”