Federal Reserve meeting, April jobs report: What to know in markets this week

After a brutal month for equity investors in April, May is kicking off with a host of major market events that could further stoke volatility across risk assets.

One of the focal points this week will be the Federal Reserve’s May monetary policy meeting, which will take place Tuesday and Wednesday. Market participants expect at the conclusion of this meeting, central bank officials will opt to raise interest rates by 50 basis points, representing the first hike of more than 25 basis points since 2000. Investors also expect the Fed to formally announce plans to start rolling assets off the central bank’s balance sheet, beginning the process of quantitative tightening.

As of Friday, Fed funds futures showed traders were pricing in a more than 99% probability that the Fed would increase rates by 50 basis points, bringing the target range for the federal funds rate to between 0.75% and 1.00%.

These expectations came after weeks of remarks from key Fed officials including Fed Chair Jerome Powell and Fed Vice Chair Lael Brainard, which suggested the Fed was warming to the idea of raising rates more aggressively in the near-term.

“We really are committed to using our tools to get 2% inflation back,” Powell said during a public appearance with the International Monetary Fund earlier this month.“It is appropriate in my view to be moving a little more quickly. And I also think there is something in the idea of front-end loading … that points to the direction of 50 basis points being on the table.”

Such a move would accelerate the Fed’s path toward bringing down inflation, which has persisted for a longer period of time and at a higher rate than many monetary policymakers initially anticipated. Last week, government data showed core personal consumptions expenditures (PCE) — the Fed’s preferred inflation gauge — rose at a 5.2% annual rate in March.

This nearly matching February’s rate for the fastest since 1983. And consumer prices soared last month by the most since December 1981 with an 8.5% annual surge.

“They’re behind the curve – they know they’re behind the curve,” Jim Smigiel, SEI Investments chief investment officer, told Yahoo Finance Live last week. “We’re plus-8% on inflation and [the Fed funds rate] is at a quarter point. They’re going to come in at 50 [basis points]. They’re going to do 50 again. And they’re going to start talking down the balance sheet.”

“From the Fed’s perspective, they at this stage are willing to trade a little GDP and a little bit of unemployment to get the inflation rate down,” Smigiel added. “I think they feel as though they’re backed into a bit of a corner. Nothing that’s happening today is going to set them off course. They’re going to be coming in early and guns blazing a bit.”

WASHINGTON DC, USA - MARCH 21: Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during the National Association of Business Economics (NABE) economic policy conference in Washington, D.C, United States on March 21, 2022. (Photo by Yasin Ozturk/Anadolu Agency via Getty Images) — WASHINGTON DC, USA – MARCH 21: Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during the National Association of Business Economics (NABE) economic policy conference in Washington, D.C, United States on March 21, 2022. (Photo by Yasin Ozturk/Anadolu Agency via Getty Images)

At the same time, Powell also suggested he believes the central bank will succeed in tightening monetary policy while maintaining the economic expansion. Some pundits, however, have been more skeptical, especially after new data last week showed the U.S. economy contracted at a 1.4% annualized rate at the beginning of this year.

“They’re in between rock and a hard place,” David Stryzewski, Sound Planning Group CEO, told Yahoo Finance Live last week. “The two big things that they have to defend against right now, inflation and then this balance between, we want low cost for lending … because there’s a lot of people out trying to get mortgages. We’ve got a lot of our economy based on businesses with high debt. And it’s been so easy to refinance it.”

“The Fed’s late to the table on trying to pull some of this back and make some of these changes,” he added. “We were in such a strong economy. And that was really our moment where we could have maybe done some of this tightening. So we’re a little bit late.”

Still, borrowing costs remain low on a historical basis, and consumers have still shown a general propensity to spend. Whether that ultimately manages to continue as the cost of doing business rises alongside interest rates and as financial conditions tighten further, however, remains the key question.

“We think recession risks are low for now but elevated for 2023. The key risk is that inflation remains elevated next year, forcing the Fed to hike until it hurts,” Ethan Harris, Bank of America global economist, wrote in a note Friday. “Besides inflation, investors should watch consumer spending, sentiment, labor supply and the front end of the yield curve to assess recession risks.”

April jobs report

The Labor Department’s latest monthly jobs report will round out the economic data docket this week, offering an updated snapshot of the strength of the labor market so far this year.

The report is due for release on Friday, and so will not be one of the datapoints considered during the Fed’s deliberations earlier in the week. However, the data likely would have played an only marginal role in informing the Fed’s decisions even if it were available, given the Fed has shifted its priorities to fighting inflation rather than maximizing employment in a labor market that has already shown copious signs of strength.

Consensus economists are looking for non-farm payrolls to rise by 391,000 in April, slowing just slightly from March’s jump of 431,000. The unemployment is expected to improve further to 3.5%, which would match February 2020’s level for the lowest rate of joblessness in about 50 years.

Average hourly earnings — a closely watched indicator of whether rising wages are reinforcing a cycle of higher prices — are expected to rise by 5.5% over last year, moderating just slightly from March’s 5.6% annual rate. Still, these wage gains have not kept pace with inflation, given consumer prices most recently climbed by 8.5%.

Economic calendar

Monday: S&P Global U.S. Manufacturing PMI, April (59.7 expected, 59.7 in prior print); Construction spending, month-over-month, March (0.8% expected, 0.5% in February); ISM Manufacturing, April (57.7 expected, 57.1 in March); ISM Prices Paid, April (87.1 in March); ISM New Orders, April (53.8 in March); ISM Employment (56.3. in March)
Tuesday: Factory Orders, March (1.2% expected, -0.5% in February); JOLTS Job Openings, March (1.1266 million in February); Durable Goods Orders, March final (0.8% in prior print); Durable Goods excluding transportation, March final (1.1% in prior print); Non-defense Capital Goods Orders, excluding aircraft, March final (1.0% in prior print); Non-defense Capital Goods Shipments, excluding aircraft, March final (0.2% in prior print)
Wednesday: MBA Mortgage Application, week ended April 29 (-8.3% during prior week); ADP Employment change, April (360,000 expected, 455,000 in March); Trade balance, March (-$86.7 billion expected, -$89.2 billion in February); S&P Global U.S. Services PMIM, April final (54.7 in prior print); S&P Global U.S. Composite PMI, April final (55.1 in prior print); FOMC monetary policy decision
Thursday: Challenger Job Cuts, year-over-year, April (-30.1% in March); Non-farm Productivity, 1Q preliminary (-2.3% expected, 6.6% in 4Q); Unit Labor Costs, 1Q preliminary (6.7% expected, 0.9% in 4Q); Initial jobless claims, week ended April 30 (180,000 during prior week); Continuing claims, week ended April 23 (1.408 million during prior week)
Friday: Change in non-farm payrolls, April (390,000 expected, 431,000 in March); Unemployment rate, April (3.6% expected, 3.6% in March); Average hourly earnings, month-over-month, April (0.4% expected, 0.4% in March); Labor Force Participation Rate, April (62.5% expected, 62.4% in March)

Earnings calendar

Monday

Before market open: Moody’s Corp. (MCO), ON Semiconductor Corp. (ON)

After market close: Clorox (CLX), Devon Energy (DVN), Diamondback Energy (FANG), MGM Resorts International (MGM), Avis Budget Group (CAR), Expedia (EXPE), Chegg (CHGG), ZoomInfo Technologies (ZI)

Tuesday

Before market open: The Estee Lauder Co. (EL), Pfizer (PFE), Biogen (BIIB), Paramount Global (PARA), Hilton Worldwide Holdings (HLT), Molson Coors Beverage (TAP), Marathon Petroleum (MPC), KKR Inc. (KKR), S&P Global Inc. (SPGI)

After market close: Caesar’s Entertainment (CZR), Airbnb (ABNB), Starbucks (SBUX), Advanced Micro Devices (AMD), Paycom Sofware (PAYC), Skyworks Solutions (SWKS), Revolve Group (RVLV), Match Group (MTCH), Lyft (LYFT)

Wednesday

Before market open: Wingstop (WING), AmerisourceBergen (ABC), CVS Health (CVS), Marriott International (MAR), Moderna (MRNA), Yum! Brands (YUM), Vulcan Materials Co. (VMC), Sinclair Broadcast Group (SBGI), Spirit Airlines (SAVE)

After market close: Booking Holdings (BKNG), GoDaddy (GDDY), Uber (UBER), Marathon Oil (MRO), Twilio (TWLO), Etsy (ETSY), TripAdvisor (TRIP)

Thursday

Before market open: Zoetis (ZTS), ConacoPhillips (COP), Apollo Global Management (APO), Nikola (NKLA), Wayfair (W), Penn National Gaming (PENN), Royal Caribbean Cruises (RCL), SeaWorld Entertainment (SEAS), Datadog (DDOG), Crocs (CROX), Dominion Energy (D), Kellogg’s (K), Shopify (SHOP)

After market close: Block Inc. (SQ), Virgin Galactic Holdings (SPCE), DoorDash (DASH), Sweetgreen (SG), Opendoor Technologies (OPEN), Zillow Group (ZG), Luminar Technologies (LAZR), FuboTV (FUBO), Live Nation Entertainment (LYV), Corsair Gaming (CRSR), Lucid Group (LCID)

Friday

Before market open: Under Armour (UAA), Cigna (CI), DraftKings (DKNG)

After market close: No notable reports scheduled for release

—

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck