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Published On: Wed, Jul 30th, 2014

US economic calendar this week packed full of events, promises volatility

The US economic calendar this week is packed with quite many releases, among which the unemployment rate and important Fed decisions to be taken.

The US economic calendar this week is packed with quite many releases

There is a lot of information in the US economic calendar expected this week, from the second quarter GDP and the Federal Reserve interest rate decision, to the July payrolls and the manufacturing report by the Institute for Supply Management.

The figure deserving greatest attention this time is the unemployment rate, which decreased to 6.1% in June after peaking at 10% during the recession. Although chances for that are slim, unemployment could drop below 6% which would move the economy closer to full employment. The latter is regarded as the lowest rate of unemployment which does not trigger an increase in inflation. Currently, the Fed views unemployment rate in the 5.2% to 5.5% rate as such.

The first GDP reading for the second quarter will have more importance for the underlying components rather than for the headline. The Commerce Department is conducting a revision of GDP data for the last three years, and the 2.9% decline for the first quarter could be revised again.

The labor market slack is something that must not be underestimated. The present wage growth lack means there is still time at the Fed disposal before it faces the need for interest rates increase. Growth data for the first half cannot be the only factor representative of how fast the economy is growing. Earnings and payrolls indicate the underlying speed is rewarding and can progress along with the tapering.

There are important decisions to be taken by the Fed, but this is not expected to happen on the meeting ending on Wednesday. This fall, the Fed’s asset-purchasing program is scheduled to end. There is no likelihood of interest rate hikes until next year.

Janet Yellen can take the opportunity at the end of August, as she delivers a speech at Jackson Hole, to discuss another point of importance: the time of cessation of the central bank proceeds reinvestment from maturing securities. At the forum Yellen can help to clarify how the Fed plans to deal with the reduction of its huge balance sheet and whether this implies a restrictive Fed policy.

There is another item to consider, the ISM data, due on Friday. The latter can provide insight of the economy acceleration pace. A sharp plummeting will negatively impact the labor market. If data remain at the same level, the most logical development is further tightening.

Markets would be closely monitoring for any clues from the Fed on potential rates increase by mid 2015. The indicators in the first half can be beneficial in the assessment of how much confidence officials might have to start the communication process and target expectations regarding the first rate hike.

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