Wall Street has become increasingly convinced the Fed will pause hiking interest rates when it releases its next decision on Wednesday, June 14. Thursday's jobless claims seemed to cement that expectation with 261,000 initial jobless claims reported for the week ending on June 3, marking the largest weekly increase since 2021.
However, two pieces of critical inflationary data are set to be released as the Fed convenes its two-day meeting. In this sneak peek from the Action Alerts PLUS investing club, team member Bob Lang explained how it could be quite the contentious meeting for voting members of the central bank following next week's consumer price index and producer price index results.
FULL VIDEO TRANSCRIPT BELOW:
JD DURKIN: So let's start with a broader look at what could shape the market's next direction now that we finally at long last cleared the debt ceiling deal hurdle, the chaos that it was. Is the Fed decision next week the next catalyst to watch, you think?
BOB LANG: Well, if you combine two things together, JD, is not only the Fed meeting next week, which is on Tuesday and Wednesday, June 13 and 14, but also inflation data is coming out next week. That's also on those two days. CPI on Tuesday morning before the market opens. And then on Wednesday, we'll have the PPI.
So the Fed will have those two data pieces in hand before they make a decision on Wednesday at 2:00 Eastern time. So it would be interesting to see how they decide. I think this was a meeting that's going to have some contention to it, meaning I think there are some who are going to argue for the Fed to pause next week at the meeting in June. But there are others who say, no. No, we've got to be more aggressive and keep the pedal to the metal here on rate hikes because inflation is still too high.
I would tell you that the Cleveland Fed, which has a now casting estimate on inflation, is forecasting next week's CPI number, JD, to come in at about 2.5%, which is probably the lowest rating we've had since November or December of 2022. So while inflation is still elevated above the Fed's target objective, it's still looming down. And we could see some fireworks from that meeting next week.
JD DURKIN: And we do look forward to that meeting, for sure. Now, Bob, in an Alert on Monday, the team noted a bit of a disparity between the strong jobs report and the ISM non-manufacturing PMI. What's going on there? And help give us a little bit of context?
BOB LANG: Well, the ISM number, JD, was really kind of a little bit confusing. And it did show some job growth, but it also did show a lot more inflation. Whereas the jobs report on Friday, the NonFarm Payroll Report, did show very, very strong jobs growth again. And the 3-month average has started to accelerate again. We also saw some decreases in average hourly earnings.
The wage number, which is the number that the Fed has been concerned about, also dropped a bit slightly month-over-month and slightly year-over-year. So things are trending in the right direction, JD. But I think some of the other data, especially on the manufacturing side of the equation, are yet to trigger any inflation drops whatsoever.
