After a jam-packed week of earnings, bank drama and mixed inflation data, Wall Street doesn't have time for a breather just yet.
A slate of economic events and data are on deck for next week. In the spotlight are the Federal Reserve's May meeting and the April jobs report.
What's expected from the Fed? Analysts expect the central bank to raise rates by a quarter point on Wednesday, and will look for guidance about the Fed's plans for the rest of the year.
Inflation data has been mixed in recent days. The Personal Consumption Expenditures price index, the Fed's favorite inflation gauge, rose 4.2% for the 12 months ended in March. That's down from an upwardly revised 5.1% in February, and suggests that the central bank's aggressive interest rate hike campaign is helping stabilize prices.
Core PCE growth also eased, though the slowdown was far more subdued, up 4.6% for the year from February's 4.7% growth rate.
But compensation for US workers grew in the first three months of the year, according to the Employment Cost Index. That signals that wage inflation, a major headache for the Fed in its fight against inflation, remains sticky.
Central bank officials watch the report closely, since high labor costs can be a driver of inflation. Businesses tend to raise compensation to hire and retain workers during a tight labor market, and pass on those costs to consumers by raising prices for goods and services.
"The Fed is stuck between raising interest rates and likely pushing the economy into a recession on the one hand, or pausing on the other hand and risk that inflation reaccelerates if the economy regains momentum and momentum in sticky prices stays high," said Bill Adams, chief economist at Comerica Bank.
Rising prices aren't the only concern facing the economy.
Federal Reserve Chairman Jerome Powell will likely face questions about credit conditions, in addition to the central bank's inflation strategy. While Wall Street appeared to believe the banking turmoil was largely contained last month, after interventions from the federal government and big banks, the tumult in First Republic Bank last week revived those fears. Concerns that tightening credit standards could help push the economy into a recession have also revved up.
Another point of concern is the labor market. While it has remained historically strong during the course of the Fed's interest rate hikes, it started showing signs of cooling in March. That suggests that the Fed's dual mandate to stabilize prices while keeping unemployment rates at a minimum could get even more complicated.
What's at stake with the April jobs report: Economists expect the Bureau of Labor Statistics' April jobs print to show slower employment growth last month and a rising unemployment rate. US employers added just 236,000 jobs in March, below expectations, and the unemployment rate fell to 3.5%. Next month's report could reveal whether the cooldown is a trend starting to form, or a blip.
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