Week Ahead: Fed Policy and Economic Data

Wall Street will be wondering next week whether the improved jobs landscape will change the Federal Reserve’s mind at all on interest rates. The Fed meets on Tuesday.

Also due next week are key economic reports on inflation, retail sales, manufacturing and consumer sentiment.

On Friday, the government reported that employers added 227,000 jobs, the third month in a row with solid gains, while the unemployment rate held steady at 8.3%.

No one thinks the Fed has any imminent plans to start raising interest rates above the 0-0.25% range at which they’ve held since December 2008. But the language out of the Fed since then has always been cautious, lowering expectations rather than raising them.

As it stands, the Fed has essentially promised to keep interest rates at historic lows for at least another two years.

With labor markets healing, it makes sense that Fed policy makers might be rethinking that strategy. In addition, the Fed is also far less likely to initiate another round of bond purchases, or quantitative easing (QE III, as it has been referred to).

Investors won’t be looking for those moves to be announced on Tuesday. Instead, they’ll look for language that hints strongly that those moves will be considered.

Inflation is likely to become more of an issue with unemployment falling. On Wednesday, a report is due on import prices, and the expectation is that import prices increased by 0.8% in February, led higher by soaring oil prices.

The producer price index is due Thursday, and the consumer price index on Friday. Both are expected to rise based on higher energy costs.

February retail sales are due on Tuesday. A boost in car sales is expected to move the numbers higher. The improved jobs landscape has had a positive impact on consumer sentiment and consumers are opening their wallets and pocketbooks for items beyond necessary groceries and the like.

The Reuters/University of Michigan Consumer Sentiment Index is out Friday. The numbers should be improved from a month ago because more Americans are working and the prospects for jobs appear to be improving.