- Yellen's implicit messages
The Fed's Chair Janet Yellen's comments at Boston Fed's 60th Annual Economic Conference on Friday was one of the most important developments last week. Yellen's 14-page speech was highly technical and did not provide a clear hint regarding the next rate hike.
She suggested that running a "high-pressure" economy with robust demand and a tight labor market might temporarily help to reverse the adverse supply-side effects of recession.
Some analysts interpreted Yellen's speech as an effort to push for new approaches and research that could benefit monetary policy in the long run.
However, markets perceived these somewhat "dovish" comments as a sign that the Fed could let the economy overheat for a while longer.
On the other hand, Boston Fed President Eric Rosengren repeated his cautious prediction of the Fed having to raise interest rates faster than current expectations.
He also commented on the timing of the next rate hike. “We have tended to move around the time the Fed chair has a press conference,” he said.
It therefore appears that the Fed officials want markets to price in a likely December rate hike while trying to find a balance between dovish and hawkish comments in order to control the sharp movements in the U.S. dollar.
Market expectations for a December rate hike were around 64 percent as of Friday evening.
- What did the FOMC minutes say?
The Federal Open Market Committee's (FOMC) September meeting minutes was another market moving development of the week.
Minutes released Wednesday reflected a decision, which was a “close call” in favor of members who supported the tightening of policy.
Moreover, a few members indicated it would be appropriate to raise rates “relatively soon.”
- U.S. election adversely affects consumer confidence
Last week was also busy in terms of U.S. economic data. Among the appreciable releases, the University of Michigan Consumer Confidence Index (UMICH) made headlines as it showed American consumers are depressed over the upcoming presidential election.
Consumer confidence in October fell to 87.9, its lowest level since last September and the second lowest reading in two years, according to the University of Michigan Surveys of Consumer Sentiment.
"It is likely that the uncertainty surrounding the presidential election had a negative impact, especially among lower income consumers, and without that added uncertainty, the confidence measures may not have weakened," wrote Richard Curtin, chief economist for the surveys.
According to other data releases, retail sales rose 0.6 percent in September, matching the market forecast. Producer Price Index (PPI) for the same period came slightly above expectations with a monthly increase of 0.3 percent. The number of Americans who applied for unemployment benefits for the first time in the first week of October was flat at 246K, its lowest level since 1973.
Another development that made headlines in the U.S. financial media was the retirement of Wells Fargo Chairman and CEO John Stumpf.
Stumpf, under fire for the bank's fake accounts scandal, has stepped down from both roles, effective immediately, the bank said Wednesday, Oct. 12.
- New week ahead
This week's agenda for the U.S. economy will be dominated by industrial production and inflation data as well as remarks from influential Fed officials.
After a 0.4 percent decline in August, the industrial production for September is expected to rise 0.2 percent. The Fed will release the data Monday morning.
Tuesday's market-mover data, the CPI, is expected to increase 0.3 percent. Also referred to as headline inflation, it will have risen for six straight months if market expectations are correct.
Other releases include housing starts, existing home sales, Philadelphia Business Outlook Index and weekly unemployment claims.
Among the Fed officials who will speak this week, the speeches of Fed Vice Chair Stanley Fischer and New York Fed President William Dudley, who are two of the most influential Fed members after Yellen, will be closely followed by the markets.
The Fed will also release its Beige Book this Wednesday.