Economists are holding their breath ahead of Wednesday’s FOMC and CPI doubleheader.
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Today’s weak jobs report has investors on the sidelines of next week’s important Federal Open Market Committee meeting.FOMC) The meeting is scheduled for Wednesday, June 12. In fact, the outcome of the June policy meeting may determine the market’s future. Will the stock market crash?
Well, probably not.
This time, it’s not so much the actual interest rate decision that’s important — most analysts already expect no rate changes this month — but the stance the Fed and Fed Chairman Jerome Powell take at the meeting.
Wall Street has been hoping for a rate cut all year, but so far it hasn’t delivered. A combination of persistent inflation and a relatively tight labor market gives the central bank little incentive to ease up on rates. As it stands, many investors are pinning their hopes on the Fed delivering its first rate cut in September.
Today’s jobs report didn’t provide much help on that front: The U.S. economy added 270,000 jobs in May, well above the 180,000 that economists had expected. That said, the unemployment rate actually rose slightly to 4%, the highest level since January 2022.
This paints an unclear picture of the current unemployment situation relative to the Fed. While rising employment numbers generally support the continuation of hawkish monetary policy, rising unemployment rates are still noteworthy.
“Accelerating wage growth could be a sign that inflationary pressures could pick up again if the Fed eases off the brakes,” said Bill Adams, chief economist at Comerica Bank. “Meanwhile, rising unemployment could signal slower wage growth going forward, softer consumer demand and less pricing power for companies, which could cool inflation.”
Concerns of a stock market crash swirl ahead of key CPI release before FOMC
Interestingly, the FOMC is not the only major economic event scheduled for next Wednesday. The Consumer Price Index for May (Consumer Price Index) The inflation report is released in the morning ahead of the interest rate decision, which is probably no coincidence.
Following a slight retreat in inflation last month, the May CPI will likely provide a first indication of whether underlying deflationary trends are taking hold in the economy or whether prices, and perhaps interest rates, will continue to run at higher than desirable levels into the second half of the year.
According to CPI Nowcasts, inflation is expected to rise 0.08% in May. This is actually a significantly lower monthly increase, but this is mainly due to the drop in crude oil prices. Core inflation, the Fed’s recommended measure that excludes food and energy, is expected to rise 0.3% in May.
If the report is accurate, it is likely to provide a relatively neutral outlook for inflation. The 0.3% increase was in line with April’s CPI reading, which marked the first respite after several months of monthly inflation increases of 0.4%.
A 0.3% rise in core rates would keep Wall Street confident of at least one rate cut this year. If that number gets closer to 0.4%, cut expectations would take a hit and Wall Street is expected to react dramatically.
Either way, CPI is expected to be a focus at the FOMC meeting on Wednesday, and how Chairman Powell responds to the data will likely shed light on Wall Street’s expectations for further rate cuts.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s Publishing Guidelines..
