Inflation puts pressure on Powell: What to know this week

The Federal Reserve will dominate the investor conversation this week.

The central bank’s final policy meeting will be Tuesday and Wednesday, June 14-15, with the Fed expected to announce a further increase of at least 0.50% in its benchmark interest rate on Wednesday afternoon.

Wednesday’s policy announcement at 2:00 p.m. ET will be followed by a press conference with Fed Chairman Jerome Powell at 2:30 p.m. ET. The Fed will also release its latest economic projection summary on Wednesday, offering officials’ forecasts for GDP growth, inflation and future rate hikes.

Following last Friday’s inflation data, investors are now bracing for the possibility of more aggressive interest rate increases from the Fed, perhaps as early as this week.

Federal Reserve Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee on May 04, 2022 in Washington, DC. (Photo by Win McNamee/Getty Images)

The Bureau of Labor Statistics’ May consumer price index (CPI) unexpectedly rose 8.6% in May, fueling concerns on Wall Street that inflation has become more entrenched in the economy. economy, potentially prompting Fed officials to take tougher action in their efforts to slow soaring costs.

“The Fed’s resolve on price stability is going to be really tested now,” Seema Shah, chief global investors strategist, said in a note. “Key rate hikes will have to be relentlessly aggressive until inflation finally starts to subside, even if the economy is struggling.”

That “relentlessly aggressive” stance could include an interest rate hike of 0.75% on Wednesday, a move Barclays economists said on Friday is now their baseline expectation. “Historically, the US central bank has avoided surprising markets by, say, rising to 75 basis points while unincorporated,” Barclays economists led by Jonathan Millar said in a note to clients released on Friday. . “But next week, we think, will probably be an exception.”

Month-over-month inflation rose 1% in May, compared to 0.3% in April. “Core” inflation, which excludes the more volatile costs of food and gas, rose 6% from a year earlier in May, more than the 5.9% expected.

Rising inflation and the potential for more aggressive Fed action weighed on financial markets last week.

The benchmark S&P 500 plunged 2.9% on Friday, completing its worst weekly performance since January and closing just above 3,900 – the lowest level in three weeks.

The decline also took annual losses to 18%, putting investors back on watch for a close in bearish territory, 20% below recent highs. The Dow Jones wiped out 880 points, or 2.7%, and the Nasdaq Composite fell 3.5% at the end of Friday’s session.

“The CPI report is another reminder that equity markets will no longer be pampered by monetary policy,” John Lynch, chief investment officer of Comerica Wealth Management, said in a note.

This slowdown was also reflected in the bond market. The 10-year US Treasury bond is having its worst year on record, losing 12.8% so far, according to data from compound advisors. The 10-year yield more than doubled in 2022, rising from 1.52% at the start of the year to 3.16% at Friday’s close.

“A higher-than-expected CPI seals the deal on investor fears,” said Mike Loewengart, managing director of investment strategy at E*Trade. “And although consumers are experiencing high prices on a daily basis, especially at the pumps, it is disappointing to see that we have yet to get inflation under control, despite the Fed’s efforts.”

In addition to the Fed’s announcement on Wednesday, investors will also be keeping a close eye on the latest retail sales report due out that morning. Commerce Department data for May is expected to show retail sales rose 0.2% last month, a deceleration from April’s 0.9% increase. Excluding autos and gasoline, the pace of retail sales likely slowed to 0.4% in May from 1% the previous month.

“Growth in nongas and grocery spending is showing signs of slowing across all income groups,” Bank of America economists said in a recent note. “The gap between three-year spending growth in states with high oil production and those with high gas prices has narrowed, suggesting the pinch in inflation is broadly being felt.”

Still on the economic data front, traders will get another glimpse of US inflation this week from the Producer Price Index (PPI), which is due out on Tuesday.

Economists polled by Bloomberg expect producer prices to have risen 0.8% in May from 0.5% the previous month; on an annual basis, expectations are that producer prices rose 10.8% in May, a deceleration from the 11% rise seen in April.

Corporate earnings reports are expected to be sparse over the coming week, with results from Oracle (ORCL) on Monday and Kroger (KR) and Adobe (ADBE) on Thursday serving as highlights for the week.

Economic Calendar

Monday: No notable reports scheduled for publication.

Tuesday: NFIB Small Business OptimismMay (93.0 expected, 93.2 in previous month), PPI Final Demandmonth-over-month, May (0.8% expected, 0.5% in prior month), PPI Final Demandyear-over-year, May (10.8% expected, 11.0% in prior month)

Wednesday: MBA Mortgage Applicationsweek ended June 10 (-6.5% the previous week), Empire ManufacturingJune (5.0 expected, -11.6 in previous month), Advance on retail salesmonth-over-month, May (0.2% expected, 0.9% in prior month), Retail sales excluding automobiles and gasolinemonth-over-month, May (0.4% expected, 1.0% in prior month), Import price indexmonth-over-month, May (1.2% expected, 0.0% in prior month), Non-oil import price indexmonth-over-month, May (0.6% expected, 0.4% in prior month), Import price indexyear-over-year, May (12% in prior month), Export price indexmonth-over-month, May (1.3% expected, 0.6% in prior month), Export price indexyear-over-year, May (18.0% in prior month), Business inventoriesApril (1.2% expected, 2.0% in previous month), NAHB Housing Market IndexJune (68 expected, 69 in previous month), FOMC Rate Decisionlower bound, June 15 (1.25% expected, 0.75% before), FOMC Rate Decisionupper bound, June 15 (1.50% expected, 1.00% before), Interest rate on reserve balancesJune 16 (1.40% expected, 0.90% before)

Thursday: Building permitMay (1.790 million expected, 1.819 million in previous month, revised to 1.823 million), Building permitmonth-over-month, May (-1.8% expected, -3.2% in prior month, revised to -3.0%), Philadelphia Fed Trade Outlook IndexJune (6.0 expected, 2.6 in previous month), Initial jobless claimsweek ended June 11 (215,000 expected, 229,000 the previous week)

Friday: Industrial productionmonth-over-month, May (0.4% expected, 1.1% in prior month), Ability to useMay (79.3% expected, 79.0% in previous month), Manufacturing (SIC) ProductionMay (0.2% expected, 0.8% in previous month), Main indexMay (-0.4% expected -0.3% in previous month)

Earnings Calendar

Monday

Before the market opens: No notable reports scheduled for publication.

After grant: Oracle (ORCL)

Tuesday

Before the market opens: Core and main (CNM)

After grant: Water (CXM)

Wednesday

Before the market opens: Jean Wiley (WLY)

After grant: No notable reports scheduled for publication.

Thursday

Before the market opens: Kroger (KR), Jabil (JBL)

After grant: Adobe (ADBE)

Friday

Before the market opens: No notable reports scheduled for publication.

After grant: No notable reports scheduled for publication.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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