There are plenty of economic reports to digest next week, as well as a Federal Reserve meeting not likely to be influenced by more mixed data from U.S. labor markets.
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Meanwhile, investors will be looking for a deal out of Washington that would prevent a fall off the so-called "fiscal cliff."
The central bank's Federal Open Market Committee, which sets most financial policy, meets for two days beginning Tuesday and ending Wednesday with an announcement on interest rates and other potential shifts in Fed strategy. Fed Chairman Ben Bernanke will hold one of his semi-regular press conferences Wednesday afternoon shortly after the policy announcement.
The Fed will almost certainly make no significant changes to its fiscal policies at next week's meeting. On Friday, the November jobs report offered no reason to alter current central bank strategies aimed at lifting the U.S. housing market and ultimately creating jobs. The U.S. added 146,000 jobs in November, far more than economists had predicted, and the unemployment rate dropped to 7.7%, the lowest in four years. But the decline in the headline unemployment rate was attributed to tens of thousands of Americans who have simply stopped looking for work and are no longer counted as part of the work force.
The Fed is unlikely to view the mixed jobs reports as a sign that monetary policy should be tightened through higher interest rates, or that bond buying purchases -- quantitative easing -- can taper off. Interest rates have been at historic lows since December 2008 and in September the Fed launched its third round of quantitative easing, purchasing $40 billion in mortgage backed securities each month to suppress mortgage rates.
On Tuesday, the National Federation of Independent Business will release its small business optimism index, which gauges sentiment among the group's members. The gridlock in Washington which has so far prevented a budget deficit deal has taken its toll on business and consumer sentiment. If no deal is reached by Jan. 1, significant tax hikes will go into effect automatically in addition to massive across-the-board budget cuts. Many economists believe another recession is unavoidable in 2013 if no deal is reached and the prospect of another severe downturn has dimmed optimism among business owners and consumers.
Several inflation gauges are also due next week: import and export prices are being reported on Wednesday; the producer price index, which measures the prices of goods paid by manufacturers and sellers, is out Thursday; and the consumer price index, which measures the price of goods paid by consumers, is out Friday.
Economists have been keeping an eye on inflation ever since the Fed began easing monetary policy during the financial crisis. The Fed has maintained all along that inflation is a concern, but not yet a top priority.
A report on retail sales is out Thursday and will include results from the biggest shopping period of the year, the several days after Thanksgiving. The numbers could be impacted by fallout from Hurricane Sandy, but many individual stores reported strong results despite the storm. Online sales were also strong in the days following the Thanksgiving holiday.
And the political theater surrounding 'fiscal cliff' negotiations will only intensify. A deal isn't likely until the very last minute, if at all.
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