Economy Watch: More Hints of an Upcoming Interest Rate Hike

Fairly positive recent data about the U.S. economy seems to point to higher rates in the near future.
Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee. Source: The Conference Board

Note: Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee.
Source: The Conference Board

As the summer draws to a close, a more urgent question among economists, prognosticators and borrowers (including entities looking to do real estate deals) is whether the Fed will pull the trigger on higher rates, perhaps as early as September. Late last week, the San Francisco Fed President John Williams offered another clue when he said that a return to rate hikes “makes sense.”

The central banker noted that in “the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.” He made the remarks in Alaska while speaking to the Anchorage Economic Development Corp.

Moreover, Williams warned against waiting too long. “If we wait until we see the whites of inflation’s eyes, we don’t just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark,” he asserted. “And that creates its own risks of a hard landing or even a recession.”

So far, recent fairly positive data about the U.S. economy seems to be on the side of higher rates. On Friday, the Conference Board released a little more of that (fairly) positive data: its Leading Economic Index increased 0.4 percent in July to 124.3 (2010 = 100), following a 0.3 percent increase in June, and a 0.2 percent decline in May.

“The U.S. LEI picked up again in July, suggesting moderate economic growth should continue through the end of 2016,” said Ataman Ozyildirim, director of business cycles and growth research at the Conference Board. “There may even be some moderate upside growth potential if recent improvements in manufacturing and construction are sustained.”