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Look forward at June 8, 2020 week: FOMC meeting, inflation and inflation expectations

A look forward to the June 8 week has a focus on inflation and inflation expectations. The FOMC meeting on Tuesday and Wednesday is anticipated to conclude with no change in monetary policy, although that bland assertion belies the weighing of risks and outcomes that will go into that decision and the update to the Summary of Economic Projections. The meeting statement will be released at 14:00 ET on Wednesday followed by Chair Jerome Powell’s press briefing at 14:30 ET. The communications blackout period ended at midnight on Thursday, so other Fed policymakers will be free to speak in public after that time. Listen for their comments on Friday.

For the preview of the FOMC meeting, see the comment on June 8, 2020.

One of the keys to any change in monetary policy will be if the data reflects sustained confidence in the economy, as will be in the wording of the forward guidance for short term rates in the FOMC statement.

The NFIB Small Business Optimism Index for May at 6:00 ET on Tuesday could show that the slide in confidence among independent businesses over the prior two months has halted and perhaps even reversed a little. Efforts on the part of the central bank to ensure a flow of credit and relief programs associated with the CARES Act may have helped revive some activity. This should not be mistaken for more than bottoming in the immediate impacts associated with the COVID-19 pandemic. It will take another month or two of data to make the situation clearer.

The preliminary University of Michigan Consumer Sentiment Index for June at 10:00 ET on Friday may lose a bit of ground after the 72.3 in May was slightly higher than the 71.8 in April. However, the first look at June will encompass the recent wave of unrest related to the killing of George Floyd and subsequent social outrage. Worries about COVID-19 remain in the background along with concerns about the labor market. Current conditions may not look much worse, but the near future is likely to be viewed with more uncertainty.

The FOMC is going to keep a close eye on inflation and inflation expectations, although the most immediate priority is propping up the labor market.

The May data on the Consumer Price Index at 8:30 ET on Wednesday, the Final Demand Producer Price Index at 8:30 ET on Thursday, and the Import Price Index at 8:30 ET on Friday should all show that energy costs are no longer the main reason that inflation measures have been soft. Prices for gasoline and other fuels have stopped falling and started increasing. This will be most prominent in the CPI and Import Price Index. The PPI takes its reading earlier in the month, so much of the gains won’t be captured. Elsewhere there are likely to be modest price hikes for some scarce goods.

Now that energy prices are no longer sliding downward, inflation expectations could rise a bit. The Atlanta Fed’s Business Inflation Expectations for June at 10:00 ET on Wednesday could be a tick higher than the 1.5% in May which was up from 1.4% in April. This is still below the Fed’s 2% inflation objective but suggests that disinflationary pressures are lessening. Consumer inflation expectations have been running higher than those for businesses. The University of Michigan 1-year inflation measure jumped to 3.2% in May after 2.1% in April, probably due more to less purchasing power on lower incomes rather than actual price increases. The 5-year measure – more consistent with the Fed’s medium-term goal – was up to 2.7% in May after 2.5% in April, and the highest in over four years.

Although levels of initial jobless claims in the week ended June 6 at 8:30 ET on Thursday are expected to continue to be exceptionally high, the numbers of new filings are anticipated to continue to abate. Economic activity is opening up again, if in increments.

The data on Job Openings and Labor Turnover (JOLTS) for April at 10:00 ET on Tuesday will not offer any particularly fresh insights into labor market conditions given that the May numbers on payrolls and unemployment rates have been published. Nonetheless, it will provide some sense of the balance between hiring and separations.

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