By Danny Jasper, Senior Vice President, Capital Markets

Mortgages are slightly better to start this week while trading volume has been relatively light so far as markets prepare for the upcoming  rate increase decision by the Federal Open Market Committee (FOMC) Thursday afternoon on whether they will raise short-term interest rates for the first time since 2006.

Economists are split right down the middle as to whether or not they think a hike is coming, with valid arguments on both sides to justify their reasoning.  Those expecting a hike would highlight the improved U.S. economy, solid labor market conditions and increase in consumer balance sheets. They would also argue the need for the Federal Reserve to create some market confidence in their communications by following through with a rate hike on market conditions that are in line with those the Fed deemed necessary to start tightening.

On the other side of the argument, the doves would say wage growth has improved but hasn’t shown consistent gains, inflation remains below the Fed’s medium term target, that Fed tightening would create a stronger dollar and a delay on hiking rates could help global markets to recover from their recent doldrums.  At this point, it appears too close to call in terms of what the FOMC will announce on Thursday at 2 p.m. EST.

Valuable Economic Data Leading Up to FOMC Meeting

There are no U.S. economic data releases today.  In Europe, we saw a positive industrial output report overnight, with output rising 0.6% in August after declining the prior two months.

While the spotlight this week will be primarily on the Fed, we will get some valuable data leading up to the FOMC meeting worth noting.  Tomorrow, we get retail sales reports for August, where the headline number is expected to print at +0.3% after showing a +0.6% gain in July, and the core sales print (excluding autos and gas) is expected to remain consistent at +0.4%.  We also get industrial productions numbers tomorrow, expected to show a slight loss at -0.2% after a strong +0.6% gain in July.

On Wednesday, we get August CPI (consumer price index) data, which is expected to show similar gains to July, and on Thursday we get housing starts and building permits reports for August in addition to the weekly jobless claims reports prior to the FOMC release in the afternoon.  Friday is light, but the second quarter change in household net worth will be released, which is always a good indicator of consumer sentiment and health of the economy.

Economic Calendar (courtesy of the FNMA trading desk):

Date Time Event Survey Prior
9/15/2015 8:30 Retail Sales Advance MoM Aug 0.30% 0.60%
9/15/2015 8:30 Retail Sales Ex Auto MoM Aug 0.20% 0.40%
9/15/2015 8:30 Retail Sales Ex Auto and Gas Aug 0.40% 0.40%
9/15/2015 8:30 Retail Sales Control Group Aug 0.40% 0.30%
9/15/2015 8:30 Empire Manufacturing Sep -0.15 -14.92
9/15/2015 9:15 Industrial Production MoM Aug -0.20% 0.60%
9/15/2015 9:15 Capacity Utilization Aug 77.80% 78.00%
9/15/2015 9:15 Manufacturing (SIC) Production Aug -0.30% 0.80%
9/15/2015 10:00 Business Inventories Jul 0.10% 0.80%
9/16/2015 7:00 MBA Mortgage Applications 11-Sep -6.20%
9/16/2015 8:30 CPI MoM Aug -0.10% 0.10%
9/16/2015 8:30 CPI Ex Food and Energy MoM Aug 0.10% 0.10%
9/16/2015 8:30 CPI YoY Aug 0.20% 0.20%
9/16/2015 8:30 CPI Ex Food and Energy YoY Aug 1.90% 1.80%
9/16/2015 8:30 CPI Index NSA Aug 238.422 238.654
9/16/2015 8:30 CPI Core Index SA Aug 242.805 242.513
9/16/2015 8:30 Real Avg Weekly Earnings YoY Aug 2.20%
9/16/2015 10:00 NAHB Housing Market Index Sep 61 61
9/16/2015 16:00 Net Long-term TIC Flows Jul $103.1B
9/16/2015 16:00 Total Net TIC Flows Jul -$110.3B
9/17/2015 8:30 Current Account Balance 2Q -$112.1B -$113.3B
9/17/2015 8:30 Housing Starts Aug 1170K 1206K
9/17/2015 8:30 Housing Starts MoM Aug -3.00% 0.20%
9/17/2015 8:30 Building Permits Aug 1155K 1119K
9/17/2015 8:30 Building Permits MoM Aug 2.20% -16.30%
9/17/2015 8:30 Initial Jobless Claims 12-Sep 277K 275K
9/17/2015 8:30 Continuing Claims 5-Sep 2263K 2260K
9/17/2015 9:45 Bloomberg Consumer Comfort 13-Sep 41.4
9/17/2015 9:45 Bloomberg Economic Expectations Sep 46
9/17/2015 10:00 Philadelphia Fed Business Outlook Sep 6 8.3
9/17/2015 14:00 FOMC Rate Decision (Upper Bound) 17-Sep 0.44% 0.25%
9/17/2015 14:00 FOMC Rate Decision (Lower Bound) 17-Sep 0.25% 0.00%
9/18/2015 10:00 Leading Index Aug 0.20% -0.20%
9/18/2015 12:00 Household Change in Net Worth 2Q $1629B