U.S. data to put December rate hike in focus

Fri Sep 30, 2016 9:04pm EDT
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By Padraic Halpin

DUBLIN (Reuters) - The limits of central bank largesse are set to be a hot topic in the coming week as global policymakers head to Washington for the annual International Monetary Find meetings and key data may harden the case for a tightening of U.S. monetary policy.

After September brought the latest overhaul of monetary policy from the Bank of Japan and signs of reluctance at the European Central Bank to extend its quantitative easing program, expectations for a U.S. Federal Reserve rate rise by year-end are set to dominate the first week of October.

Fed Chair Janet Yellen said last week she expected one rate rise this year if the U.S. job market continued to improve and major new risks did not arise, leading economists and financial markets to price in a December move.

Friday's U.S. non-farm payrolls for September, the first of three remaining jobs reports ahead of the Fed's second-last meeting of the year on Dec. 13-14 may narrow the debate over how much slack remains in the labor market.

"Given the recent weakness in activity-based indicators, all eyes will be on the labor market data rather than inflation metrics. Specifically, the employment income trend will be crucial for the economic outlook and policy action," Nordea economist Amy Yuan Zhuang said.

"The employment report for September is expected to support the case for a Fed rate hike before year-end."

After inflation showed signs of accelerating on Friday but consumer spending unexpectedly fell, next week's Institute for Supply Management indices of manufacturing and non-manufacturing activity, which both slipped markedly in August, will also be closely watched.

As will the remarks of Fed officials in another busy week of "Fedspeak", with four speeches scheduled for Friday, after the release of the jobs report.   Continued...

Pedestrians walk past the Federal Reserve Building in Washington April 3, 2012. REUTERS/Joshua Roberts