Data last week gave little reason to suspect that monetary policy would soon deviate from the current path of gradual rate increases. Tame inflation continues to hold the pace of rate hikes to “gradual.” Still, the Fed will resist ending rates hikes until they have good reason to expect growth will slow to a range they believe consistent with stable inflation. That will make for interesting debate if growth remains strong as the policy rate approaches 3%. Still that is a story for later. The immediate future holds yet another rate hike.

Industrial production told a familiar story – the nation’s factories hum a long, powered by solid underlying demand:

Retail sales were on the soft side in August, but prior months were revised higher:

Still, the upward trend of core sales is the best experienced during this cycle. Whenever you hear of a threat to household spending, it pays to remember that the U.S. consumer will not go quietly into the night.

Although the economy looks to be holding onto the momentum of the second quarter (the Atlanta Fed currently pegs growth at 4.4%), inflation remains under control. Core-CPI inflation plummeted on a monthly basis, pulling the year-over-year numbers lower:

It’s numbers like those that keeps the Fed locked into a gradual pace of rate hikes. The Fed might believe that the current pace of growth will eventually prove inflationary hence preemptive hikes remain necessary. But at the same time, inflation doesn’t provide a reason to step hard on the breaks. That said, the unusually weak goods inflation (apparel and medical goods commodities) pulled the overall August inflation number lower:

On the services side, medical care was a drag. I suspect this weakness will prove to be temporary. I would be wary of expecting a sustained downturn of inflation at this stage of the cycle and I am hesitant to expect a sustained declined in health services inflation. Still, whatever behavioral switch that triggers worrisome inflation dynamics appears to remain in the “off position.”

Fedspeak will be nonexistent this week, blacked out in advance of next week’s FOMC meeting. Sadly, only a few data releases will entertain between now and then. Most important will be housing data (starts and permits Wednesday, existing home sales on Thursday). We will be watching for indications that housing activity could be a moderating factor on economic activity. Enough such factors and the Fed could see the data that support a sustained policy pause in the first half of next year. But as I have said before, that is still more hope than reality.

Bottom Line: Quiet week as we await next week’s FOMC meeting.