"While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years"
- Lynn Franco, director of Economic Indicators at the CB
Statistics from the labour market, housing sector, consumer spending, industrial production and the number of building permits– they all have been soft in the recent months. And yet, the Federal Reserve tries to persuade markets the economy is building up steam and the pace of growth is sufficient enough to taper further.
The key unemployment rate fell to 6.5%, and according to St. Louis Fed President James Bullard, the economy is just 0.6% away from full employment. Moreover, another hawk from Dallas Fed– Richard Fisher backed his comments. The interesting thing is that markets are buying it. The U.S. stocks have taken back 100% of the losses made in the first two month of this year. Analysts already expect Friday's report to show a 2.5% growth instead of 3.2%. If the Fed considers the economy is firing on all eight cylinders, then the U.S. policymakers are out of touch.
Meanwhile, according to the Commerce Department, sales of new U.S. homes jumped to the highest level in more than five years, easing concerns of a slowdown in the housing sector. Sales surged 9.6% to a 468,000 annualized pace, overshooting expectations of analysts and reaching the highest since July 2008. December's sales were revised upwards to a 427,000-unit pace from 414,000 reported previously.
© Dukascopy Bank SA