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By Noreen Burke
Investing.com -- With the Federal Reserve almost certainly set to deliver a half-percentage-point rate hike at its upcoming meeting on Wednesday, investors will be awaiting further insights on its next steps to combat surging inflation. The labor market is another key part of the Fed’s mandate and Friday’s U.S. employment report is expected to show that jobs growth remained robust in April. Earnings will continue to roll in as investors contemplate what was the worst month for stocks in more than two years. Meanwhile, the Bank of England is expected to deliver its fourth rate hike in a row, one day after the Fed, on Thursday. Here’s what you need to know to start your week.
Fed rate hike
With a half-percentage-point rate hike by the Fed already baked in, investors will be focusing on signals from Fed Chair Jerome Powell at his post-policy meeting press conference on the future path of interest rates, plans for reducing its almost $9 trillion balance sheet and the Fed’s view on when inflation may peak.
Many investors and analysts believe the Fed will continue to surprise on the hawkish side as it attempts to contain the worst inflation in four decades, fueling concerns that aggressive monetary tightening could trigger a recession.
The view of Fed policymakers on how persistent the current pace of inflation is expected to remain will be critical to future monetary policy tightening plans.
“If the Fed continues to expect high levels of inflation and they don’t see it moderating in the future, that will be a concern for investors," Michael Arone, chief investment strategist at State Street Global Advisors, told Reuters.
"It will mean that the Fed will continue to raise rates and tighten monetary policy, which the market is expecting, but maybe even more aggressively."
Nonfarm payrolls report
Friday’s nonfarm payrolls report is expected to show that the U.S. economy added 380,000 jobs in April, while the unemployment rate is expected to tick down to 3.5%. Average hourly earnings are expected to post another solid increase.
The jobs report comes on the heels of data last Thursday showing that the U.S. economy unexpectedly contracted in the first quarter, but the decline was largely driven by a wider trade deficit as imports surged, and a slowdown in the pace of inventory accumulation. Domestic demand remained robust, allaying fears of a recession.
But the outlook for the economy continues to be clouded by concerns over the economic impact of the war in Ukraine, rising bond yields, new coronavirus lockdowns in China that could stymie improvements in global supply chains, and more aggressive monetary policy tightening by the Fed.