What do you know this week

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Traders returning from the long weekend will turn their attention to more comments from the Fed, with the minutes of the recent FOMC meeting and Fed Chair Jerome Powell’s speech on board. Relatively few new economic data reports or corporate earnings results are due out.

The FOMC meeting minutes, due for release on Wednesday afternoon, will clarify members’ thinking from their March meeting. At the conclusion of that meeting, The central bank’s average forecast for economic growth has been sharply revised, reflecting improved growth trends as the course of new COVID-19 infections improves and vaccinations widen. The central bank said it expects real GDP growth of 6.5% this yearAs against 4.2% that was expected in December. The Federal Reserve also said it sees the unemployment rate improving to 4.5% by the end of the year before returning to the pre-pandemic level of 3.5% by 2023.

Despite this improved outlook, the Fed continues to telegraph that interest rates will likely remain pending at current levels close to zero through 2023, with the central bank maintaining its very accommodative monetary policy despite a faster-than-expected economic recovery. Previously. Market participants were wary of this message, as the Fed suggested a stubborn slant toward easy monetary policy even in the face of rising inflation. The Fed’s latest forecast showed that the average member believes core inflation will rise to 2.4% this year, reaching and exceeding the Fed’s 2% target two years earlier than previously expected.

Fed Chairman Powell said at his press conference in mid-March that inflation had to be “on track, moderating above 2% for some time” for the Fed to consider meeting its inflation target and permitting a rate hike. However, this confirmation has left room for interpretation by market participants, leading many to speculate that the Federal Reserve may be pushed to adjust policy sooner than it was sent recently.

The story continues

‘Disagreement over expectations’

According to a recent survey by Deustche Bank, “The current gap between the market and the Federal Reserve is mostly about disagreement in expectations. In particular, survey respondents expect that core PCE in the range of 2.2% -2.3% in 2022 and 2023 will generate more. Fed hawkish response, “Deutsche Bank economist Matthew Luzetti wrote in a note. “While we learned at the FOMC meeting that 2.1% is core personal consumption expenditures [personal consumption expenditures] Inflation is not high enough to trigger a takeoff, and it remains unclear whether inflation rates in the 2.2% -2.3% range – as expected in our survey and market pricing – will be high enough to induce the Fed to tighten. This ambiguity is one of the drawbacks of the Fed’s flexible inflation-targeting (FAIT) approach that leaves key parameters undefined. ”

“If the Fed clearly indicates that core PCE inflation in the range of 2.2% -2.3% for a year or two is consistent with their view of FAIT and will not lead to monetary tightening, it could affect market prices,” he added. “On the contrary, if the FOMC thinks it will raise rates in response to inflation perception, the market is currently pricing in an appropriate reaction function and it will take some time to judge whether the Fed or the market is right about the continuation of this shock. Inflation. ”

But while the jury appears to be a market participant when it comes to the timing of the next rate hike, many agree that the first step toward tightening by the Fed will likely occur in the asset-buying program in the era of the crisis. Federal Reserve Chairman Powell said the central bank will look for “more substantial progress” – And specifically “actual progress” In the data It is not “predicting progress” Toward the Fed’s employment and inflation targets before considering tapering off.

However, with the latest batch of economic data for March surpassing estimates, the Federal Reserve may soon begin providing more consistent guidance about its plan to scale back the $ 120 billion per month asset purchase program that was first laid out at the start of the last pandemic. Year.

“Financial conditions should remain perfectly adequate for some time, and in our view there is a risk of an override,” said Rich Ridder, BlackRock’s chief investment officer. “We think the Fed should be able to curtail asset purchases sooner than many expect and possibly by the end of the year, or early next year, suggesting to us that the delivery of its plan could come as early as the June meeting.”

While the upcoming meeting minutes will not take into account the FOMC members ’assessment of the latest batch of economic data, it will provide market participants with an idea of ​​whether some members are inclined to overlook the first signs of a faster-than-expected economic recovery in dictating the direction of monetary policy.

Nevertheless, the public comments by Fed Chairman Powell this coming Thursday will provide a timely insight into the central bank’s policy thinking. Powell will speak at IInternational Monetary Fund Committee on the World Economy Thursday afternoon.

The discussion will come about a week After the March jobs report to the Ministry of Labor, That showed a much better than expected gain of 916,000 non-farm payrolls and the unemployment rate fell to 6.0%. In addition, the Institute for Supply Management’s Manufacturing PMI jumped unexpectedly last week to its highest level in 37 years, with some survey respondents already indicating high commodity prices and supply and demand mismatches which could exacerbate upward price pressures. . Market participants will look to Powell’s speech to see if these publications alter the tinge of the Fed’s monetary policy outlook.

Economists at RBC Capital Markets wrote in a note last week: “We expect that with the data coming in, the volatility in Fed sentiment will become more pronounced in the coming months.”

Economic calendar

• Monday: US Services PMI from Markit, March final (expected 60.2, 60.0 in the previous print); Markit US Composite PMI, March Final (59.1 in previous edition); ISM Services Index, March (forecast 58.7, 55.3 in February); Factory Orders, Feb (expected -0.5%, 2.6% in Jan); Durable Goods Orders, February Final (-1.1% Expected, -1.1% in Previous Print); Durable Goods Orders excluding transportation, February final (expected -0.9%, -0.9% in previous print); Non-defense capital goods orders excluding aircraft, February final (-0.8% in previous print); Non-defense capital goods shipments excluding aircraft, February final (-1.0% in previous print)

• Tuesday: JOLTS Jobs, February (6.944 million expected, 6.917 million in previous print)

• Wednesday: MBA Mortgage Applications, week ending April 2 (-2.2% over the previous week); February trade balance (forecast $ 70.5 billion – $ 68.2 billion in January); Consumer Credit, February (expected $ 2.800 billion – $ 1.315 billion in January) FOMC meeting minutes, March meeting

• Thursday: Initial Unemployment Claims, the week ending April 3 (690,000 expected, 719,000 during the previous week); Continuing claims, week ending March 27 (3.794 million during the previous week)

• Friday: PPI, MoM, March (0.5% expected, 0.5% February); PPI excluding food and energy, month over month, March (0.2% expected, 0.2% in February); Producer Price Index, YoY, March (Expected 3.8%, 2.5% in Feb); PPI excluding food and energy year-over-year, March (2.7%, 2.5% expected in February); Wholesale Inventories, MoM, February Final (expected 0.5%, 0.5% in previous print)

Earnings calendar

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Emily McCormick is a correspondent at Yahoo Finance. Follow her on Twitter: @emily_mcck

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