The Week Ahead: The Fed and U.S. Jobs
U.S. Economy Surprises to the Upside
The big economic news this past Friday happened shortly before the markets opened. First-quarter U.S. Gross Domestic Product (GDP), a primary measure of economic growth, came out much better than expected at 3.2% (annualized) against a prior consensus forecast of only around 2.5%. It was the best first-quarter growth since 2015. Aiding in this unexpected strength was both an increase in exports and a decrease in imports.
This upside GDP surprise has helped put to rest both the Federal Reserve’s and the markets’ concerns about slowing economic growth, at least for the time being. Coupled with a U.S. stock market that’s at or near new all-time highs, Friday’s economic surprise is certainly good news for investors.
But What About Inflation?
The Fed holds its next FOMC meeting this coming week, when it will once again decide on the forward trajectory of interest rates and monetary policy. The central bank is widely expected to hold rates steady. By themselves, Friday’s strong GDP showing and recently surging equity markets might compel the Fed to rethink its dovish turn and interest rate halt that began early this year.
But persistently lagging inflation is likely the factor that will keep the Fed on its dovish path. Along with GDP on Friday, the Bureau of Economic Analysis also released personal consumption expenditures (PCE). The PCE price index (a key inflation indicator) increased only 0.6% in Q1 versus 1.5% in the previous quarter. Despite strong economic growth figures, inflation is apparently not keeping pace. This should continue to keep the Fed reluctant to raise rates or otherwise tighten monetary policy further.
Fed and U.S. Jobs in the Week Ahead
The week ahead will be jam-packed with key U.S. economic events and company earnings. Most importantly, we’ll have the Fed’s FOMC decision and press conference on Wednesday. It remains to be seen whether accelerated economic growth tempered by lagging inflation will affect the Fed’s interest rate path going forward. The central bank has been dovish since the beginning of the year. Will this new data prompt more Fed dovishness, a hawkish shift, or have little effect at all?
Also in the week ahead, on Friday, we’ll get the widely-watched U.S. jobs report for April. Last time around, we saw a big jobs beat. This time, consensus expectations are forecasting around 180,000 jobs created in the month of April. Any deviation from expectations could have a significant effect on the markets.
Aside from the FOMC and U.S. employment report, we’ll also see core PCE inflation data on Monday, U.S. consumer confidence numbers on Tuesday, and U.S. manufacturing PMI on Wednesday.
Check out our Market Events & Earnings Calendar for more events and company earnings!
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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Chief Market Strategist at The Technicals
With more than two decades of experience as an equity analyst for several major research firms, Don has covered individual stocks (both technically and fundamentally) across a wide variety of sectors and industries, including tech, financial, and retail. He has been quoted regularly in key financial media like Bloomberg and Reuters. Contact Don