Inflation dominates thinking on rates

By THIS IS MONEY
Updated:

 

A critical look at inflation and growth that will figure prominently in the Federal Reserve's future deliberations could make for a tense week in Wall Street's stock and bond markets.

The most important of a stream of data scheduled for this week will come on Thursday with the publication of the Employment Cost Index and the first estimate of first-quarter gross domestic product.

The ECI report is considered the most reliable measure of wage inflation. It is expected to show a rise of about 0.8%, up from 0.7% the previous month. The ECI has been edging up in recent quarters as rising wages coincide with a slight increase in the cost of benefits, such as health care.

Robust growth is adding to wage pressure as it has pushed US unemployment to very low levels and economists say it appears growth remained well above trend in the first-quarter.

The GDP report, also on Thursday, is expected to show growth slowed to the 3.5-3.75% range from the 6% rate of the previous quarter, but is still higher than the 2.5% to 3% Federal Reserve chairman Alan Green-span would prefer to lessen the chances of inflation resurfacing. If the ECI or the GDP are higher than ex-pected, the likelihood that the Fed will tighten interest rates at its next policy-making meeting in May would increase.

Consumer confidence has played a role in keeping growth high and the latest reading on the Consumer Confidence Index, due on Wednesday, is expected to remain high, at the 134 level.

Two of the most popular Internet shares, America Online and Amazon.com, report earnings tomorrow and Wednesday respectively. America Online is expected to report nine cents a share, and Amazon.com a loss of 29 cents a share.

P Data supplied by Thomson Global Markets.

Most watched Money videos