Written by Noreen Burke
Investing.com – With the Federal Reserve likely to raise interest rates by half a percentage point at its next meeting on Wednesday, investors will be waiting for more information about the next steps it will take to combat accelerating inflation. The job market is another key part of the Fed’s mandate and Friday’s US jobs report is expected to show that job growth remained solid in April. Earnings will continue to flow as investors contemplate the worst month for stocks in more than two years. Meanwhile, the Bank of England is expected to raise interest rates for the fourth consecutive time, a day after the Federal Reserve did on Thursday. Here’s what you need to know to start your week.
Fed rate hike
With a half-percentage point increase in the Fed’s key rate already, investors will focus on cues from Fed Chair Jerome Powell at his post-meeting press conference about the future path for interest rates, and plans to trim its nearly $9 trillion balance sheet. and the Fed’s view of when inflation might peak.
Many investors and analysts believe the Fed will continue to surprise hawks as it tries to contain the worst inflation in four decades, raising fears that strong monetary tightening could lead to a recession.
Federal policy makers’ opinion on the continuation of the current pace of inflation will be key to future plans for monetary tightening.
“If the Fed continues to project high levels of inflation and doesn’t see any moderation going forward, that will be a concern for investors,” said Michael Aaron, chief financial analyst for Reuters Investments in State Street. Global Advisors, Reuters.
“It will mean the Federal Reserve will continue to raise interest rates and tighten monetary policy, which the market expects, but perhaps more aggressively.”
Nonfarm Employment Report
Friday’s non-farm payroll report is expected to show that the US economy added jobs in April, while the unemployment rate is expected to fall to . It should again show strong growth.
The jobs report comes on the heels of data released last Thursday, which showed the US economy unexpectedly contracted in the first quarter, but that decline was largely due to a larger trade deficit due to increased imports and a slower pace of inventory buildup. Domestic demand remained strong, allaying fears of a recession.
But the outlook for the economy is still clouded by concerns about the economic impact of the war in Ukraine, rising bond yields, new coronavirus lockdowns in China that could hamper improvements in supply chains in global markets, and more aggressive monetary policy tightening by European countries. feed it.
Earnings season is set to follow up on reports from. (NYSE :), (NASDAQ :), (NASDAQ :), (NYSE :), among others.
April saw the index’s biggest monthly drop since the start of the coronavirus epidemic in early 2020, while the technology index posted its biggest monthly drop since the 2008 financial crisis.
Poor earnings results and concerns about the Fed’s tight monetary policy have hurt huge technology and growth stocks.
The decline accelerated Friday, with the S&P 500 down 3.6% – its biggest one-day drop since June 2020 – after the release of disappointing earnings and guidance by (NASDAQ:) sent shares of the e-commerce giant down 14%.
Besides the Fed’s April meeting and earnings and jobs report, the economic calendar includes several major economic reports over the next week, including the PMI and Monday and Wednesday, respectively. The strong results are likely to confirm the view that the economy will expand in the second quarter, keeping the Fed’s tightening plans on track.
The job vacancy report is due on Tuesday, followed the next day by the non-farm payroll numbers. The Labor Department will release the weekly report on Thursday, ahead of nonfarm payrolls data on Friday.
Bank of England meeting
The bank is expected to raise interest rates for the fourth time in a row when it meets on Thursday, a day after the Federal Reserve hike, which it has not seen since 1997.
Bank of England Governor Andrew Bailey said the bank was on a “very fine line” between cutting inflation, which is 7% more than triple its target, and preventing inflation and recession.
A quarter-point rise to 1% would fulfill a precondition for the Bank of England to start selling the bonds it holds.
Active bond selling may tighten monetary conditions, but it could hurt the ailing economy and no major central bank has started this process yet.
–Reuters contributed to this report