This week, Wall Street economists are eagerly awaiting the release of key economic reports, particularly the April consumer price index (CPI). The focus is on the Federal Reserve and the potential for interest rate cuts before the winter. The first quarter saw a pause in the trend of lower inflation, leading to concerns about higher inflation and less easing from the Fed. Fed Chair Jerome Powell has outlined two possible paths to cuts: renewed confidence in low inflation or unexpected weakening in labor markets. As economists analyze the data, they will keep these paths in mind. Additionally, Powell will speak on Tuesday, providing updates on the U.S. economy and interest rates. He is expected to reiterate that it will take time to gain sufficient confidence to cut rates. On Wednesday, the April CPI data will be released, with economists predicting a 0.4% rise in headline CPI inflation, marking the third consecutive month of increase. However, the index is projected to moderate to a 3.4% annual rate in April, down from 3.5% in the previous month.
However, there is an expectation that core inflation will slightly decrease, with a rise of 0.3%. This would be the lowest rate since December. The core Consumer Price Index (CPI) is also predicted to drop to a three-year low, with an annual rate of 3.6% in April.
Stephen Stanley, the chief U.S. economist at Santander, believes that April could be a small step in the right direction. However, Derek Holt, head of capital markets economics at Scotiabank, suggests that even if the reading is lower than expected, it would not be enough to influence the Federal Reserve’s decisions in the near future. He also adds that if there is a higher reading, it may motivate the Federal Open Market Committee (FOMC) officials to reconsider their previous rate cuts.
Gasoline prices are anticipated to contribute to inflation pressure in April, while medical-care costs may slow down and potentially start a long-term trend of softening.
Despite the unexpectedly high inflation readings in the first quarter, economists still anticipate a decrease in inflation throughout the year. According to the most recent quarterly Survey of Professional Forecasters by the Philadelphia Fed, economists predict headline inflation to be at a 2.5% rate in the fourth quarter, with core inflation running at a 2.7% annual rate.
In regards to April retail sales, economists surveyed by the Wall Street Journal expect a moderation after the strong gain in the previous month. They predict a 0.5% increase, compared to the 0.7% rise in March. Excluding automobile sales, a sharper decrease is expected, with a 0.2% gain compared to the 1.1% increase in March.
Lou Crandall, chief economist of Wrightson ICAP, suggests that it is important to average the two months of core readings together.
“The initial estimates for March showed an unexpectedly large increase, but this may not be in line with other consumer indicators. It wouldn’t be surprising if these estimates were revised down in this report. If that happens, it is likely that growth in April would be stronger than expected,” said the analyst.
Weekly jobless claims will be released on Thursday at 8:30 a.m. Eastern Time. According to economists surveyed by the Wall Street Journal, jobless claims are expected to decrease by 12,000 in the latest week ending May 11. This would reverse more than half of the unexpected 22,000 increase to 231,000 in the previous week.
Economists believe that the increase in claims was influenced by a spike in New York, where school support staff filed claims due to a late spring-break vacation week.
As the Federal Reserve closely monitors the strength of the labor market, all eyes will be on the upcoming jobless claims data.