Week Ahead: Fed meeting to assess inflation landscape

Week Ahead

With the G7 event in Cornwall wrapping up on Sunday, the Federal Reserve meeting is the big event in the markets this week, whilst traders will also be keeping a close watch on high frequency data such as unemployment claims, retail sales and manufacturing indices from the US. Meanwhile UK inflation data will be assessed for any signs of pressures building in prices that could nudge the Bank of England to tighten monetary policy earlier than thought. 

FOMC 

Wednesday’s statement from the Federal Reserve is not expected to feature any fireworks, but it is an important meeting as it will offer clues about the reaction function of the central bank to rising inflation fears. We know the Fed is happy to let inflation run a little hot over the summer as it pins everything on its employment mandate. So, labour market data is arguably more important than inflation numbers right now. On that front the last NFP jobs report was something of a Goldilocks number – not too hot to worry about an early taper of the Fed’s $120bn-a-month bond buying programme, but not so cool as to fret about the recovery. The truth is the Fed is looking at both and this meeting comes at a time of great uncertainty over whether inflation will indeed prove to be as transitory as policymakers believe. 

Minutes from the FOMC meeting in April had the Fed floating a trial balloon, as these indicated some policymakers are thinking about thinking about tapering asset purchases. “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. Members of the FOMC also stressed the importance of “clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases”. Tentative – the question remains: when does the Fed think it’s hit the landing area for the economy, and does inflation take off in the meantime? This week’s meeting is not expected to deliver any surprises – the jobs numbers are positive right now but the labour market is some way off the Fed’s goal, whilst the inflation story is fairly well understood for now.

US economic data 

There is also going to focus on a batch of important high frequency data out of the US, including retail sales for May, producer price inflation and manufacturing indices for the New York and Philadelphia regions. Expectations for retail sales are heating up – last week the National Retail Federation raised its growth expectations for US retail sales in 2021 to between 10.5% and 13.5%. May should show a pick-up in sales after unexpectedly stalling in April as the boost from stimulus cheques faded. An acceleration is expected in the coming months thanks to a huge savings glut and the rapid reopening of the economy. 

UK inflation 

The Bank of England does not think inflation will run away, so Wednesday morning’s CPI print will be closely watched by GBP traders. Although it significantly upgraded its near-term economic forecasts and announced a form of ‘technical’ taper’ of bond purchases at its last meeting, the Bank’s outlook on inflation suggests it will be in no rush to raise rates this year. This is acting as a headwind for sterling – an above-forecast reading could be a tailwind. 

 

Major economic data 

Date  Time (GMT+1)  Event 
Jun 14th  10:00  EZ industrial production 
Jun 15th  07:00  UK unemployment  
  13:30  US retail sales, PPI, Empire State manufacturing index 
  14:15  US industrial production 
Jun 16th  03:00  China industrial production, retail sales, fixed asset investment  
  07:00  UK CPI inflation 
  13:30  Canada CPI inflation 
  15:30  US crude oil inventories 
  19:00  FOMC statement 
  19:30  FOMC press conference 
 Jun 17th  02:30  Australia unemployment 
  08:30  Swiss National Bank statement 
  10:00  EZ final CPI inflation 
  13:30  US unemployment claims, Philly Fed manufacturing index 
Jun 18th  tentative  Bank of Japan statement 

 

Key earnings data 

Date  Company  Event 
Jun 15th  Oracle Corp.  Q4 2022 Earnings 
  On The Beach  Interims 
Jun 17th  Adobe Inc.  Q2 2021 Earnings 
  Whitbread  Trading Update 
  Halfords  Finals