On Wednesday Housing Starts and Building Permits figures were released. New-home construction in the U.S. rebounded in November, led by gains in single-family dwellings that signal the residential real estate industry will continue to support growth in the world’s largest economy. Housing starts climbed 10.5% to a 1.17 million annualized rate from a 1.06 million pace in October, figures from the Commerce Department showed Wednesday in Washington. Building permits, a sign of future construction, increased 11% in November to a 1.29 million annualized rate, the most since June. They were projected to rise to 1.15 million.

 

However, the focus of the week was on Fed's rate decision. According to the Fed statement the Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

 

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

 

Thursday brought Unemployment Claims and Philly Fed Manufacturing Index figures. In the week ending December 12, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 11,000 from the previous week's unrevised level of 282,000. This was in line with market expectations. The 4-week moving average was 270,500, a decrease of 250 from the previous week's unrevised average of 270,750. 

 

Separate report, on Philly Fed Manufacturing Index showed that diffusion index for current activity returned to negative territory this month, decreasing from 1.9 to -5.9. Analysts were anticipating slight incline to 2.1. This is the third negative reading in the past four months. The index for current new orders remained negative and fell 6 points, to -9.5. However, firms reported higher shipments, as the current shipments index increased 6 points to a reading of 3.7. Firms reported a decline in unfilled orders, with the index falling from 2.4 to -17.7.

 

Next week markets will be looking at:

 

Final GDP (Tuesday 14:30)

Existing Home Sales (Tuesday 16:00)

Durable Goods Orders (Wednesday 14:30)

New Home Sales (Wednesday 16:00)

Unemployment Claims (Thursday 14:30)