This Is The Data Revision Which Just Made A Rate Hike Much More Likely
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One of the big problems Janet Yellen has had in recent weeks is that she, and the Fed in general, are running out of excuses not to hike rates. Sure, they can delay rate hikes or outright cancel them, but that would suggest three things:
Here is the Fed's quandary in a nutshell: the Fed has had several anchor components on which to base its favorable assessment of the economy: a steadily dropping unemployment rate and a rising number of jobs (seasonally adjusted as they may be), driven by low-paying workers who comprise the bulk of the "waiter and bartender" recovery as we have dubbed it, and one which continues to ignore the labor bloodbath in the shale sector; wages which only recently have resumed rising on the back of minimum wage increases as an indicator of declining slack in the economy and which had been Yellen's primary concern all throughout 2015; and finally inflation data which while crashing for most of 2015 due to plunging commodity prices, recently posted the biggest annual jump in core inflation in years and additionally with the base effect in energy prices about to anniversary, it is very likely that inflation prints are about to pick up substantially.
In other words, the only thing holding the "data-dependent" Fed back was the market's reaction to its tightening cycle, resulting in a global bear market and the S&P's infamous drop in recent weeks. But refusing to hike rates even as the economy continues to "improve" due to the market's reaction would further dent the Fed's credibility which would be once again seen as merely a pawn in the hand of the market.
So what the Fed did in recent weeks is find anotherloophole that could validate economic weakness, one first suggested by Deutsche Bank: namely that the US savings rate is rising dangerously high and suggests that the US population itself does not have faith in the recovery, by refusing to spend.
And sure enough, looking at the December savings rate, which had risen to a three years high of 5.5% validated these concerns.
Until moments ago, when in a wholesale data revision, the Bureau of Economic Analysis revised personal consumption and spending data for the period July-December.
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