Economic Indicators Dashboard – 3 indicators to watch before the next Fed meeting

With the next Federal Reserve Board meeting fast approaching on Dec. 15 and 16, investors everywhere are monitoring key economic and market indicators in an attempt to anticipate whether the Fed will raise interest rates for the first time since June 2006, or choose to continue to hold rates steady and near zero. The Economic Indicators Dashboard tracks some of the most relevant indicators to pay attention to: market volatility, inflation and unemployment. November 2015 Economic Indicators Accessed on November 19, 2015. How do I read this chart? This dashboard is intended as a tool to set context and perspective when evaluating the current state of the economy. For each indicator, the horizontal bar shows four things.
  • A blue color band represents the typical range for this indicator. +/- 1 standard deviation of historical values for the indicator fall in this range.
  • An orange marker shows the most recent value – the closer the marker is to the blue bar, the closer it is to historically typical conditions.
  • A grey area outside of the blue band which shows the range actual conditions.
  • An arrow shows the most recent three-month trend indicating if it is moving toward or away from the typical range

Market volatility

In September, the Fed cited the spike in market volatility as one of the reasons they chose to hold interest rates steady. Market volatility, as measured by the Chicago Board Options Exchange Volatility Index (CBOE VIX), had not reached similar levels since 2011. It has since come down from its September highs and remains within its historical typical range with its three month trend continuing upward. This reading is in line with Russell Investments’ view, encouraging investors to prepare for higher levels of market volatility going forward.

Inflation

Inflation has persisted below the Fed’s 2% target since the spring of 2012. In December 2014, it dipped below its historical typical range, where it still sits today. The October readings indicate that consumer prices for all items excluding food and energy rose 0.2% year-over-year for the second straight month, bringing inflation to 0.12%. The next inflation reading will be reported on Dec. 15—the first day of the Federal Reserve Board meeting—and will likely be one of the primary data points of consideration.

Unemployment

The October employment report came in strong, bringing the unemployment rate to a new recent low of 5% - half of what it was at its peak (10%) in October 2009. So far this year, the economy has added approximately 2 million new jobs as of Oct. 30, slightly lower than the 2.3 million it added for the full calendar-year 2014. The labor participation rate has remained at 62%, but wage inflation seems to be picking up.

The bottom line

All eyes are on the Fed as we wait to hear its decision on Dec. 16 to raise interest rates. Judging by these three key economic and market indicators, and the Fed’s past comments, we think it seems likely that the Fed will take action sooner than later.
Standard Deviation is a statistical measure that reflects the degree to which an individual value in distribution tends to vary from the mean of the distribution. Standard Deviation is a useful tool in measuring the historical typical range as 1 Standard Deviation includes approximately 68% of the historical values in a normal distribution. Using this measurement allows us to exclude the more extreme values which would not be as probable to see from the indicator.Data stated is historical and not a guarantee of future results.Data displayed in the Economic Indicators Dashboard are reflective of current data as provided by the data sources including any revisions to previous data. These revisions may change historic data points and historic ranges for some or all indicators. These changes are usually due to seasonal adjustments to previously supplied data. The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. It is not intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Anyone using this material should consult with their own attorney, accountant, financial or tax or consultants on whom they rely for investment advice specific to their own circumstances. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide, including Russell Financial Services, Inc., member FINRA. Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management.  Copyright © Russell Investments 2015. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty. RFS 16293
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