Hoping for help from the Fed
The Federal Reserve's policy meeting takes center stage this week as investors wait for word on the future course of interest rates.
NEW YORK (CNNMoney.com) - As stocks continue their volatile ride along what appears to be the bottom of a market downturn, investors will focus on one key event next week: The statement from the Federal Reserve's policy meeting.
That the Fed will raise rates yet again when it meets June 28 and 29 is nearly certain. Rate futures on the Chicago Board of Trade put the likelihood of a quarter-percentage point raise in the fed funds rate at 100 percent.
That would bring the target for a key short-term interest rate to 5.25 percent and mark the 17th straight hike after two straight years of steady rate increases.
Some are even betting central bank policy-makers could bump up the rate by as much as half a percentage point.
"The only real wild card is how hawkish the Fed statement will be," said Art Hogan, chief market strategist at Jefferies & Co.
Fear of inflation and uncertainty about how far the central bank will go with its rate hiking campaign have been weighing on markets since mid May. Last week all three major indexes hit lows for the year, and what has followed has been days of volatile up and down trading.
The Dow finished the week down 0.2 percent, the broader S&P 500 index lost 0.5 percent on the week, and the tech-heavy Nasdaq fell 0.4 percent.
Although commodity prices have eased from near record highs over the past week or so, investors still fear higher prices will begin to creep into everyday goods and spark a jump in inflation that will cripple economic growth.
But investors are also concerned an overzealous Fed will raise interest rates too high and choke off the flow of cheap capital, making it harder for businesses to make money and also triggering an economic downturn.
By the numbers
A slew of economic reports are due next week, and that could mean more volatility, according to Peter Cardillo, chief market analyst at S.W. Bach & Co.
"Next week we have a lot on the plate, the FOMC meeting, end-of-the-quarter window dressing (when fund managers tweak their clients' portfolios) and a slew of economic data," he said.
May readings on personal income and spending are likely to be closely watched. Economists are calling for a moderate decline in both measures, and investors will hope the numbers aren't too far out of line.
"As we look at the data releases ahead, the most important will be the personal consumption numbers," Hogan said.
Investors will be focusing on the inflation readings from the reports, which many economists say is a more accurate reading of inflation than the closely watched consumer and wholesale price reports. Some say the so-called core PCE price reading in the report is also the most important to the Fed. (Full story.)
The Fed usually gets a look at government economic reports a day before they're released to the public, so it's likely policy-makers will see the inflation reading in the income and spending report before they release their statement Thursday.
"Barring any major news positive or negative, I think we're going to be sideways into the Fed decision," Hogan said.
Other numbers of interest next week include new home sales set for release Monday, consumer confidence and existing home sales on Tuesday, and a final reading on first quarter gross domestic product Wednesday.
In earnings news, Walgreen (Charts) is set to report before the open Monday. Nike (Charts) reports Tuesday after the close. Wednesday sees ConAgra (Charts) before the open, while General Mills (Charts) and Monsanto (Charts) report before the open Thursday. Palm (Charts) and Blackberry maker Research in Motion (Charts) report after the closing bell Thursday.
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