Upcoming economic data has huge stakes for the Fed
For economic wonks and other data-watchers, every release of jobs, inflation and other indicators is important. But this upcoming round of data is extremely consequential.
Why it matters: During an appearance before Congress on Tuesday, comments from Fed chair Jerome Powell suggest the central bank is on a knife's edge and may abandon a shift to more gradual monetary tightening that had been in the works for months — if the data confirms re-accelerating economic activity.
What they're saying: "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," Powell told lawmakers.
- After Powell's comments, expectations that the Fed would hike by a half-point later this month jumped to 60% as of 11:50am ET, according to a tracker maintained by the CME. On Monday, that was 31%.
- Powell also acknowledged that recent data has come in "stronger than expected," which implies the ultimate level of rates "is likely to be higher than previously anticipated." Translation: The Fed will probably raise rates higher than the 5.1% implied by its last official forecasts in December.
Where it stands: Fed officials spent months guiding markets toward a new phase of monetary policy, suggesting they would move in smaller steps to take stock of how tightening is rippling through the economy.
- That plan may be out the window if — emphasis on if — January's hot data repeats in February.
What's next: The Fed will lean on incoming data between now and the start of their policy meeting March 21-22 for signs of whether inflation continued to reemerge last month.
- That flood of data starts on Wednesday, with the job openings and turnover report, then February's jobs report out Friday and next Tuesday's consumer price index.
- Other notable data points before the policy meeting include retail sales and the producer price index, both out next Wednesday, and next Friday's industrial production.
The bottom line: If those reports confirm the signal sent from January data, dreams of a soft landing and painless disinflation will become more distant.