The Fed, Interest Rates, & Economic Calendar

Last friday’s release of a large increase in the unemployment rate and a surge in oil prices spooked financial markets with a carry-over effect to Asian and European markets. With the Federal Reserve expected to keep interest rates steady through the June meeting, this week will see a sharp focus on economic releases to clarify the future of the US economy. The economic calendar will provide plenty to analyze:

Economic Calendar this Week

Monday – Federal Reserve Chairman Ben Bernnake gives a speech at an inflation conference. Bernanke, who just last week gave his public support for the importance of maintaining a strong US dollar is expected to continue the Fed’s recent trend of placing the risks of inflation to the economy as greater than the risk of slow or negative economic growth. The new chief of the St. Louis Federal Reserve Bank was quoted Friday as saying the central bank should make fighting rising prices a top priority and other fed officials are on record as shifting their focus from growth to inflation. A strong stance by Bernanke could startle already edgy financial markets.

Thursday – May Retail Sales – Economists forecast that the government’s rebate checks will give a boost to retail sales. A negative surprise in this number could create more panic about a recession.

Thursday – Jobless Claims – This is a weekly release which takes a heightened significance after the big jump in the nation’s unemployment rate. It should also be a good indication of how successful college graduates have been at landing jobs.

Friday – Consumer Price Index – Economists already know that food and energy prices have increased at an alarming pace in 2008, what will be closely watched is the “core inflation” number to determine if inflation is hitting other sectors. An increase over 0.2% in core inflation will be bad news for the economy.

Friday – June Consumer Sentiment Index – The University of Michigan’s consumer sentiment survey will be dissected to determine if consumers believe the worst of the US economic slowdown is past them.

Interest rates will be greatly influenced by this week’s economic releases as well. Mortgage rates may decline if financial markets continue to selloff and Treasury yields drop, while short-term deposit rates may increase if it appears likely that the Fed may raise rates by the end of the year to thwart inflation.