Federal Reserve LogoAn economist told Insider Louisville that economic growth will accelerate next year and that the Federal Reserve will not raise interest rates until December at the earliest.

Stocks jumped Wednesday after the Fed decided to keep a key interest rate unchanged. Broader markets all gained about 1 percent. Shares of Humana rose 0.76 percent. Yum gained 0.92 percent. Brown-Forman rose 0.67 percent.

Gus Faucher, deputy chief economist at PNC Financial Services Group, told IL that mixed economic data supported the Fed’s decision Wednesday to hold rates steady.

While median household income jumped 5.2 percent last year, job growth has slowed somewhat. The U.S. economy added an average monthly 220,000 jobs last year, while the gain has dropped to 180,000 this year.

Gus Faucher
Gus Faucher

PNC estimates that GDP will grow 1.5 percent this year, down from 2.6 percent last year, Faucher said.

The Fed will not raise rates at its November meeting, Faucher predicted, because it will want to avoid taking any influence on the presidential election. That leaves its December meeting as the first opportunity to raise rates.

The Fed said Wednesday that “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.”

A lackluster recovery is continuing, Faucher said, and recent higher income data point to an acceleration of economic growth.

Faucher said he expects the job market to remain tight, which should continue to put upward pressure on wages, and that, too, should boost economic growth.

PNC projects that GDP growth will hit 2.3 percent next year.

Faucher said Kentucky should see slightly faster growth next year than the nation as a whole, though the state’s median household income will continue to lag the national average, in part because of a lower concentration of high-paying, high-tech jobs and a lower share of residents with college degrees.

“I do think that we are going to see more broad-based economic growth in 2017,” Faucher said.

PNC logo.svgHighlights from PNC’s Economic Report:

  • The consumer price index rose 0.2 percent in August, with core prices up 0.3 percent.
  • Retail sales fell 0.3 percent in August, the first decline in March. However, fundamentals for consumer spending remain solid.
  • Housing starts fell 5.8 percent in August, but “housing will be a positive for economic growth into 2017.”
  • Inflation will rise toward the end of the year and into 2017 because of rising but stable energy prices, a stronger dollar and rising wages, which will lead businesses to raise prices.
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Boris Ladwig
Boris Ladwig is a reporter with more than 20 years of experience and has won awards from multiple journalism organizations in Indiana and Kentucky for feature series, news, First Amendment/community affairs, nondeadline news, criminal justice, business and investigative reporting. As part of The (Columbus, Indiana) Republic’s staff, he also won the Kent Cooper award, the top honor given by the Associated Press Managing Editors for the best overall news writing in the state. A graduate of Indiana State University, he is a soccer aficionado (Borussia Dortmund and 1. FC Köln), singer and travel enthusiast who has visited countries on five continents. He speaks fluent German, rudimentary French and bits of Spanish, Italian, Khmer and Mandarin.