by Calculated Risk on 1/29/2014 08:36:00 PM

It is likely that the Fed will change their forward guidance soon since the unemployment rate is approaching 6.5%. The Fed has been clear that 6.5% is not a trigger, but the wording will have to change soon.

It is very possible that there will be more emphasis on inflation as Cardiff Garcia at the FT Alphaville discusses The Fed’s converging misses on inflation and unemployment

[L]ooking ahead, there are at least two reasons why the Yellen Fed might soon consider, or at least should consider, downplaying the unemployment rate threshold in its forward guidance in favour of a greater emphasis on inflation.

The first, and more widely discussed, is that there remains uncertainty about what is causing the demographic-adjusted decline in the labour force participation rate, and therefore it’s also uncertain how reliably the unemployment rate is reflecting labour market health. ...

The second reason is partly a matter of simple mathematics. The unemployment rate, now at 6.7 per cent, has been falling quickly towards the Fed’s central tendency forecast of 5.2-5.8 per cent for the long-term rate, while the latest year-on-year readings for both core and headline inflation (1.1 and 0.9 per cent respectively) have remained well below the Fed’s explicit 2 per cent target — as they have for nearly two years.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 327 thousand from 326 thousand.

• Also at 8:30 AM, the Q4 GDP report. This is the advance estimate of Q4 GDP from the BEA. The consensus is that real GDP increased 3.0% annualized in Q4.

• At 10:00 AM ET, Pending Home Sales Index for December. The consensus is for a 0.5% decrease in the index.