Two Friday reports could force the Fed’s hand

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Federal Reserve Board Chairwoman Janet Yellen testifies before the House Financial Committee about the State of the economy on July 12, 2017 in Washington, DC.

Two Friday morning economic data releases could shed some important light on the economy.

One is a direct measure of inflation: The consumer price index, set to be released by the Bureau of Labor Statistics before Friday's opening bell, is expected to show an annual inflation rate of 2.3 percent, according to economist estimates compiled by FactSet. That September number would represent a moderate increase from the 1.9 percent inflation rate seen in August.

The second is retail sales, set to be released at the same time by the U.S. Census Bureau. Here, economists are looking for a moderate month-over-month increase of 1.6 percent in September as compared with August, on a seasonally adjusted basis. That compares with the mild 0.2 percent drop seen in the prior month.

Together, these two reports will "address the two main concerns of the FOMC," Boris Schlossberg of BK Asset Management wrote to On Events on Thursday, referring to "growth and inflation."

"If data is good on both fronts — i.e. inflation is hot and retail sales are strong — that should seal the deal" on a December increase of the Federal Open Market Committee's interest rate target.

In the Fed's September statement, the committee notes that the pace of future rate hikes will depend upon "realized and expected economic conditions relative to [the Fed's] objectives of maximum employment and 2 percent inflation."

At this point, the market-implied odds of a December rate hike stand at 88 percent, according to CME Group's popular "Fed Watch" tool.

Even putting aside the Fed, the data should hold some important and market-moving economic information for investors.

Strong inflation and retail sales will "jump-start the rally in yields and the dollar as markets will finally believe that we are coming out of the disinflationary period into a 'normal' growth cycle," Schlossberg wrote.

CNBC

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