Daily Economic Outlook: 17th July, 2015

Fed Chair Yellen's semi-annual testimonies earlier this week hardly deviated from other recent statements and continued to sound cautiously optimistic over the economic outlook. She saw prospects for further improvement in the labor market and the wider economy, and still expected inflation to return to target over the medium term, says Lloyds Bank. 

US is scheduled to release inflation data for June today. The data may provide another key input into the debate. While a recovery in CPI inflation towards 2% over the medium term is generally expected by the Committee, the near-term profile has been expected to remain low. While the CPI is not the Fed's preferred measure of inflation - but still valued for its timeliness - today's release is likely to provide evidence that inflation has bottomed out in the US. Following the rise to 0.0% in May, a further pick-up in headline annual CPI to 0.2% alongside a firming in 'core' inflation to 1.8% from 1.7% is expected, added Lloyds Bank.

Alongside the inflation release, the focus remains on the US, with housing starts for June expected to have accelerated to 1100k from 1036k - in part reflecting the strong increase in building permits in May. While some moderation in June building permits are likely following the previous month's strong rise, the overall outlook for housing activity in the US remains constructive. 

Later in the day, the July reading of consumer sentiment from the University of Michigan is expected to show a further improvement following June's sharp rise. Lloyds Bank estimates, the index is likely to pushing up from 96.1 to 96.5 - which would be a six-month high. Meanwhile, comments from Fed Vice Chairman Stanley Fischer will be closely watched for his latest views on the US policy outlook.