Rate Decision At Fed June Meeting In Focus; May Retail Sales, Inflation Reports On Tap

Investors will be paying close attention this week to the outcome of the Federal Reserve’s interest rate decision at the conclusion of their 2 day June policy meeting that wraps up on Wednesday alongside May retail sales figures and inflation reports that will give more clues about the strength of the U.S. economy.

The Fed’s rate decision on Wednesday will be followed by a press conference and summary of economic projections by Fed Committee members.

The CME Fed Watch currently has a probability of a rate hike at the Fed’s June meeting standing at only 2 percent but it jumps up to 37 percent during the Fed’s September meeting and 59 percent in December.

Weaker U.S. labor growth in recent months and lingering concerns of a Brexit during the U.K.’s June 23rd referendum vote have helped to lower expectations of an interest rate hike in June.

After the disappointing May jobs report that only created 38,000 jobs, reaching a 6 year low, alongside downward revisions for March and April that was -59,000 lower than first reported, hawkish Fed members are losing momentum to justify a rate hike in June.

The job numbers for March was revised from 208,000 to 186,000 and April was revised from 160,000 to 123,000.

During the past 3 months, job gains have fallen well below 200,000 and averaged 116,000 per month.

Fed members will also be paying attention to retail sales figures for May that will be announced on Tuesday.

Economists from briefing.com have a consensus retail sales estimate of only 0.3 percent in May after retail sales increased by 1.3 percent in April.

U.S. Inflation

The Federal Reserve’s preferred inflation gauge, Core PCE inflation, shows that inflation rose to 1.6 percent in April on an annualized basis and is slowly moving closer to the Fed’s 2 percent inflation target.

This week the market will absorb 2 more inflation reports for the month of May that are expected to provide more clarity about the change in price increases in addition to export/import turnover due on Tuesday for May.

On Tuesday the Producer Price Index (PPI) for May will be reported and give Fed members one additional snapshot of price changes ahead of their rate decision on Wednesday.

Economists from briefing.com have a PPI consensus forecast of 0.3 percent in May after rising 0.2 percent in April.

On Thursday the Consumer Price Index (CPI) for May will come into focus.

Economists from briefing.com have a consensus estimate of 0.3 percent in May after April’s 0.4 percent increase.

On  Friday data for building permits and housing starts in May are due.

Uncertainty about the U.S. election season could weigh more heavily on the market in the months ahead, especially after Republican presumptive nominee Donald Trump has talked about tearing up existing U.S. trade agreements and “renegotiating” new trade deals with a host of other countries.

Full Economic Calendar

Monday- none

Tuesday- Retail Sales (May),  Import/Export Prices (May), Business Inventories (April)

Wednesday- FOMC Rate Decision (2:00 p.m.) and press conference, PPI and Core PPI (May), Empire Manufacturing (June), Capacity Utilization and Industrial Production (May), Crude Inventories, Net-Long Term TIC Flows

Thursday- CPI and Core CPI Inflation (May), Initial and Continuing Claims, Philadelphia Fed (June), Current Account Balance Q1, NAHB Housing Market Index, Natural Gas Inventories.

Friday- Building Permits, Housing Starts (May)

Written By: Johnathan Schweitzer



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