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Latest Data Signal Solid Momentum for U.S. Economy

Date: Thursday, February 16, 2017
Source: Morning Star

Stronger consumer spending, rising factory production and firming inflation are pointing to solid momentum for the U.S. economy and another interest-rate increase by the Federal Reserve, potentially as soon as next month.

The Commerce Department on Wednesday reported stronger-than-expected growth in retail sales in January, while the Labor Department said a gauge of U.S. inflation rose to its highest annual level in nearly five years and the Fed reported factory output increased last month.

For several months now, gauges of investor, business and household sentiment have been trending higher. The latest reports suggested real economic activity remains on track but hasn't yet broken out strongly to the upside.

Together with Fed Chairwoman Janet Yellen's statement this week that the central bank may raise rates "at our upcoming meetings," the latest indicators boosted the odds of a rate increase in mid-March. Futures tracked by CME Group on Wednesday signaled a roughly 1-in-4 chance of a Fed move at next month's policy meeting, double the probability before Ms. Yellen's congressional testimony on Tuesday.

Action also could come at the Fed's meeting in early May. J.P. Morgan Chase economists said Wednesday's data convinced them a move was likely then, after they earlier predicted the Fed would wait until June.

The stock market jumped following the Nov. 8 presidential election, along with surveys of consumer confidence and business sentiment, raising hopes for a pickup in overall economic growth.

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