US inflation report “absolutely critical” for future Fed policy
The Federal Reserve raised interest rates once again last week. Chairman Powell signaled that the quarter percentage point hike could be the last one. But he cautioned that policymakers were willing to increase borrowing costs yet again when they meet in June and July. That will depend on economic indicators in the coming weeks.
On Wednesday, the Bureau of Labor Statistics will release the April Consumer Price Index and that reading is “absolutely critical” in the words of JP Morgan Asset Manager Karen Ward. If inflation is shown to be cooling, shelter costs will be one key indicator, the Fed will have more maneuverability able to “reprioritize.” However, if inflation is “sticky,” specifically labor costs, the Fed will be “hamstrung.”
While the Fed is trying to get inflation down to its target of 2%, it is currently running more than double that, Ward says moderately high inflation wouldn’t necessarily be a bad thing for stocks. Such a situation with continued strong economic growth, like the “goldilocks” jobs report last week, could help for a better broader performance in the stock market.
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