This week is a big one for interest rate markets. The economic calendar is full of data on businesses and manufacturing with both ISM reports (manufacturing and services), construction spending, personal income and spending (Monday), auto and truck sales, Q1 productivity and unit labor costs. The main focus, however, is twofold: the FOMC meeting that concludes Wednesday with its policy statement and on Friday the April employment report. The early estimates are for non-farm job growth at 150K after only 88K jobs in March, and the unemployment rate unchanged at 7.6%, which should not be a focus as it doesn’t really tell the tale of job creation. Wednesday starts the ball rolling on employment when ADP reports its private jobs numbers for April; presently the estimate of what ADP will say is 150K new jobs.
The FOMC meeting starts Tuesday and ends Wednesday. Markets will direct attention to how the Fed frames the present economy that is showing signs of slowing. The Fed is facing an increasing concern of deflation; CPI is now under the 2.0% level that the Fed wants, at 1.7%. What to do? Most likely nothing this time around, but we will see how the statement reads. This policy statement will be tough to formulate; the Fed is likely to continue its easing clear through to the end of the year, but what is the plan if deflation concerns increase? At the moment the Fed is failing on both of its legislated mandates; the employment market is still not moving after years of money printing and low rates. Now recent measurements on inflation are not meeting the Fed’s target on the down side. This week should keep market volatility on high.