NFP report coming
The NFP (Non-Farm Payroll) report is coming out this Friday, May 5th. There has been a lot of talk of fairly aggressive interest rate hikes, supposedly with at least two more to come in 2017. They have even gone so far as to indicate a release of a plan for running off the balance sheet that possibly begins as early as the end of 2017. However, the timing of these will be crucial and that puts the NFP back on the map in a big way. Any NFP report coming out, along with statements from Fed chair Janet Yellen, will offer critical insight into what is in store for the largest global economy.
The FOMC is going into a two-day policy meeting at the end of which we will only receive a policy statement without the clarifying opportunities of a press conference. This means each word in that fairly concise statement stands to be heavily scrutinized as traders look for indication of the next rate hike. At the moment, the consensus is that a rate hike for this month is highly unlikely, however, much of the expectations are geared towards a hike in June with about 70% certainty, and the numbers coming out will certainly play a big role in this.
Two central figures to be keeping an eye on are full employment and inflation. When it comes to employment, the current 4.5% is considered by most policy makers a healthy level and in line with figures necessary to continue their projected path for 2017. With inflation, the Fed is looking for a steady 2%. While overall the numbers have been relatively good, there is a clear slowdown detected in the first quarter. This could derail the Fed's rate hike plan if we start to see a pattern emerge and the sluggish pace doesn't even out or speed up.
In addition to these numbers, other global factors also threaten to influence the U.S economy. Elections in Europe are coming up two days after the NFP's release. Though many favor Macron for the win, the possibility of a Le Pen upset is not out of the question until results are in and that is leaving traders relatively cautious. In September, there will be elections in Germany where Chancellor Merkel will be running for her 4th term. Despite being a favorite to win in the polls, the socialist sentiment growing in Europe throughout a year of political unrest is nothing to scoff at and the election will prove a final hurdle to global stability.
Alongside the European tension, things like North Korean missile tests, a 7-year Syrian civil war, and spreading Islamic terror attacks are all on a very delicate perch and provide an ongoing risk that is difficult to gauge.
This statement is not likely to be especially exciting but it will be telling. The expectation is for a fairly non-committal statement along the lines of staying on course with the current plan. What remains to be seen is if and how the Fed will address the slowdown, intentions for June, and global climate.