Strong Economic Data Signals Rising Rates

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Two manufacturing data points sent conflicting signals this morning. Industrial production declined 0.1 percent in August to mark the first decline since January. Revisions also lowered output in July. On the other side, the regional index of manufacturing activity in the New York region, the Empire State Manufacturing Index strengthened to a five-year high in September. The drop in industrial production was likely due to seasonal adjustments regarding auto production and does not point to a slowdown in U.S. data. In fact, look for Janet Yellen to remove the “considerable time” provision relating to a rate increase in her policy statement on Wednesday. If she does, that could signal a rate hike sooner than expected. Based on the strength of the economic data we may see the Fed raise rates in March 2015 or sooner. Please follow industrial production on page 11 of the Global Perspectives book.

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