Economic Wrap: FOMC minutes were not signalling March - Westpac

Analysts at Westpac offered an economic wrap.

Key Quotes:

In the FOMC minutes, "many" officials expected a rate hike "fairly soon" if the economy remained on track. Only a "few" officials thought that a hike at the upcoming meeting would give the Committee flexibility. While not fresh news, the minutes don’t give any strong clues that March is likely (while leaving it as a possibility), which is disappointing for markets.

Several judged the risk of a "sizable undershooting of the longer run normal unemployment rate was high” and if that were the case a more aggressive stance might be needed. However, inflation was still running short of the Fed's goal, and a few saw downside risks.

On the flip side,  "a couple of participants expressed concern that the Committee's communications about a gradual pace of policy firming might be misunderstood as a commitment to only one or two rate hikes per year." And while there was no formal discussion of the balance sheet, participants "also generally agreed that the Committee should begin discussions at upcoming meetings about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds from maturing Treasury securities."

Event Risk

Australia:  Private business CAPEX is falling, led lower by mining. In Q3, capex fell by 4.0%, with building & structures -5.7% and equipment -1.9%. By industry, mining was -7% and services -2%. For Q4, we expect capex to fall by 2.5%, with building & structures down 4.5%. Weakness will be in mining, while commercial building stabilises after a corrective sharp fall in Q3. In Q3, equipment spending weakened as businesses delayed plans due to uncertainty around the July Federal election. Prior to this, service sectors spending was providing some support. For Q4, lingering uncertainty could see a flat equipment result.

Regarding private capex expectations, Est 4 for 2016/17 was $107bn, -14% vs Est 4 a year ago. Avg realisation ratios (RRs) imply -15%, down $19.5bn. By industry, based on avg RRs: mining is -34%, down $18bn; services -2%; and manufacturing -2%. For Est 1 2017/18, expect continued weakness in the estimate, but at a smaller rate of decline as the mining drag wanes.

US: Dec FHFA house prices last came in at 0.5%, still running at a solid pace. The Feb Kansas city Fed index printed 9 last month and should confirm the strength from other manufacturing surveys. The Chicago Fed index was previously 0.14, with another positive print this month supporting the prospects of strong near term growth. Initial jobless claims are around historic lows, after 239k last week.

Fedspeak involves Lockhart speaking on his 10yr tenure with the Atlanta Fed at the Banking Outlook Conference hosted by the Atlanta Fed."