This week: Fed's Yellen to testify on economy, rates

Federal Reserve Chair Janet Yellen testifies before Congress this week on the economy in a hearing that should clarify whether the Fed remains on track to hike interest rates next month after Donald Trump’s win in the presidential race. Meanwhile, reports on retail sales, inflation, industrial production and housing starts will provide the Fed a window onto the economy that could help determine whether it acts at a mid-December meeting.

Retail sales surged in September on rising gasoline prices and stronger auto purchases, but a core measure that strips out such volatile categories edged up just slightly after two straight declines. Consumers, however, are generally on solid footing after this year’s steady job growth and solid wage gains, which accelerated in October. Economists expect the Commerce Department on Tuesday to report that retail sales jumped another 0.6% last month while a core reading bounced back, advancing a healthy 0.4%.

Fischer: Case for gradual rate hikes 'quite strong'

On Wednesday, the Fed turns toward a creaky gear in the economy’s engine — industrial production. Since 2014, manufacturers have grappled with the oil sector downturn and weak exports. With oil prices rising and the dollar stabilizing in 2016, factory output has recovered somewhat but remains choppy. Economists expect the Fed’s October report to show a modest 0.2% increase.

Yellen’s appearance before the Joint Economic Committee on Thursday offers her the first chance to weigh in on any economic fallout from Trump’s election. In response to his claims during the campaign that Yellen was keeping interest rates low to help President Obama, she simply said the Fed is unaffected by politics. Some economists believe Trump’s win has intensified uncertainty about trade, immigration and other issues that could prompt businesses to curb hiring and investment. But markets have rallied since the vote, and many economists say the Fed is still likely to hike its key rate next month for the first time in 2016.

Trump win raises questions about December rate hike, Fed's future

A further pickup in inflation could help solidify a December rate increase. Meager inflation has been a big reason the Fed has been on hold, but prices climbed more rapidly in recent months. Nomura economist Lewis Alexander says rising gasoline prices probably pushed up overall inflation substantially in October. A core measure that excludes food and energy is expected to increase modestly as higher medical costs offset softness in airline fares and hotel rates, Alexander says. Economists expect the Labor Department to announce an increase in annual inflation to 1.6% in October and an unchanged 2.2% core reading.

Housing starts have increased steadily this year but tumbled in September on a 38% plunge in volatile apartment starts, which had picked up strongly in previous months. Economists expect Commerce to report a rebound in October, with starts rising 10.8%.