The FOMC statement released after the meeting last week was a bit of a shocker, about as hawkish as you are likely to get from that cooing group. It was intimated about as strongly as one can intimate something without actually saying it, that they expected to be hiking rates at the December meeting. Well, as long as the labor market continues to improve and they feel comfortable that inflation will get back up to their target of 2%. Based on the economic data released last week I wonder if somehow the Fed has confused its economic models with reality, if they’ve accidentally been watching the wrong dials on the old economic fine tuning machine. For there was almost nothing in that data that suggests the Fed’s goals, its requirements for raising rates, will be met in the next 60 days.

In fact, the data released last week could have easily been cause for alarm at the FOMC as the housing market data showed a definite slowing in the last month. Housing, along with autos, has been one of the few bright spots of the economy over the last year, showing pretty steady improvement. New home sales were down month to month, August was revised down significantly and the year over year change is less than 2%. Pending home sales were also down on the month.

The manufacturing data released last week was also pretty grim with all but the Chicago PMI continuing to point to more weakness. Durable goods orders were down again and last month’s lousy number was revised even lower. Core capital goods orders were off over 7% year over year, a number completely at odds with the FOMC statement that “business fixed investment ha(s) been increasing at solid rates in recent months”.

The committee characterized “household spending” as also “solid” something hard to square with the personal consumption numbers also released last week. Neither personal income or spending moved much more than a rounding error and the Fed’s preferred inflation gauge, the PCE deflator, was up only 1.3% year over year, quite a ways from the goal of 2%. The FOMC is no doubt trying to look through the gas price drop that is affecting the numbers, something all of us are trying to do, but I would just point out that gas prices haven’t change much since August so I’m not sure this latest data can be “blamed” on lower gas prices.