Tone of next week’s US economic data on track to be positive, but Fed will remain deaf

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The tone of the US economic data next week is expected to be positive, but Federal Reserve officials will not flinch and will be firm in their belief that it is too early to talk about exiting their loose monetary policy in their policy meeting on Tuesday and Wednesday. The Fed, still cautious, will not alter its stance that it can wait until 2024 for US interest rate hikes, and will say that it is too early to even start talking about cutting its $ 120 billion a month in Asset purchases, also known as quantitative easing, economists said.

Fed Chairman Jerome Powell will meet with reporters Wednesday afternoon after the central bank’s two-day policy meeting. “April is too early for the turnaround talks to return,” said Matthew Luzzetti, chief US economist at Deutsche Bank. Jim O’Sullivan, TD Securities’ chief macroeconomic strategist for the US, agreed: “We expect officials to be reluctant to say anything that could be construed as a countdown signal until much later this year.” . The new Fed policy framework indicates a willingness to let the economy warm up and inflation to exceed 2%. “At the first puff of that, they would wave the white flag, that would be ridiculous; what would be the point,” said Josh Shapiro, chief US economist at MFR Inc. after what is expected to be a relatively quiet FOMC meeting. , economists Expect a solid rise in first-quarter gross domestic product in data to be released on Thursday and an acceleration in core inflation in releases on Friday. The Fed won’t have the actual data at its previous meeting, but it will have a pretty good idea of ​​the numbers. Economists polled by the Wall Street Journal expect growth of xx% in the January-March period, stronger than the 4.3% rate in the fourth quarter of last year. But some economists see much faster growth. Shapiro said the economy is on track to regain all lost ground caused by the pandemic by the end of the year. The first quarter GDP report will be released on Thursday at 8:30 am ET and on Friday the Fed’s favorite measure of inflation, the price index for personal consumption spending, will be released. Lewis Alexander, chief economist at Nomura Securities, forecasts basic PCE prices to rise to about 2.5% for April and May before falling to about 2% in the fall. “The Fed will want to see ‘a series’ of solid data before pointing to a decreasing timeline,” Luzzetti said. “We hope these discussions will heat up over the summer,” he said. O’Sullivan said he just changed his forecast for the start of the March 2022 taper from September 2022. After rising in March, long-term yields on US Treasuries BX : TMUBMUSD10Y have retraced some of this month’s gains. “The market, for now, is respecting the opinion of the Fed, it doesn’t believe, it respects. And it is respecting it because the Fed seems very determined to keep the policy as it is despite all the [solid] economic indicators, ”said Mohamed El-Erian, Allianz’s chief economic adviser. Will the market believe it? “For that we are going to wait for more data. Because it is “still early in the rise in inflation,” El-Erian said.