The Federal Reserve held the policy rate at 3.50 to 3.75 percent on Wednesday afternoon. Chair Jerome Powell said the labor market remains roughly in balance and inflation is still running above the 2 percent target. Two data points this week will shape what comes next. The Bureau of Labor Statistics releases the first quarter Employment Cost Index Thursday at 8:30 AM Eastern. The Institute for Supply Management releases the April manufacturing PMI Friday at 10 AM Eastern.
Economists surveyed by Bloomberg expect ECI wages and salaries to print at 0.9 percent for the quarter. That would mark a small step down from 1.0 percent in the fourth quarter of 2025. Annual ECI wages would land at 3.6 percent. The Federal Reserve has called ECI the cleanest read on labor cost pressure because the index controls for changes in the mix of jobs and industries. A print at or below 0.9 percent would support the case that wage growth is settling toward a level consistent with 2 percent inflation.
The April manufacturing PMI is the second print. Consensus calls for 49.1, the same level reported in March and the fifth straight month under 50. New orders and production subindexes have been weak since tariff implementation in February. Prices paid jumped to 70.3 in March, the highest reading since June 2022. Friday's release will show whether tariff pass-through is feeding more aggressive price hikes from manufacturers or whether demand softness is starting to absorb cost pressure.
Federal funds futures put the probability of a rate cut at the June 16 to 17 meeting near 64 percent. That number has moved within a 12-point range for three weeks. A soft ECI plus stable PMI prices paid would push June cut odds higher. A hot ECI plus rising prices paid would erode them. Goldman Sachs continues to expect two cuts in 2026 with the first arriving in June. Morgan Stanley pushed its first cut call to September after the March PMI. JPMorgan keeps July as its base case.
Personal Consumption Expenditures inflation for March prints Friday morning at 8:30 AM Eastern alongside the ISM release. Headline PCE is forecast at 2.7 percent year over year. Core PCE is forecast at 2.6 percent. Both numbers held flat from February. The trim mean PCE published by the Dallas Fed will draw extra attention because it strips out the volatile food and energy categories that have moved on geopolitical news this spring.
Bond market reaction will be visible at the open. The two year yield closed at 3.84 percent Wednesday. The ten year closed at 4.30 percent. The spread between the two has held near 46 basis points for two weeks. A soft ECI tends to flatten the curve at the front end. A hot PMI prices paid figure tends to steepen it at the back end. Treasury Direct rates on series I bonds reset Friday and that announcement will come from the Treasury Thursday afternoon.
Wage data inside the ECI will be cut by industry. Health care and social assistance wages have led other sectors for six straight quarters with annual gains above 4 percent. Information services wages have decelerated to 2.1 percent. Construction wages are running at 4.4 percent on tight skilled trades demand. State and local government wages have run at 3.9 percent on contract reopeners. Federal government wages are flat following the hiring freeze that began in late January.
The April nonfarm payrolls report releases Friday May 8 at 8:30 AM Eastern. Consensus is 145,000 to 160,000 jobs added with the unemployment rate ticking up to 4.3 percent. ADP private payrolls release Wednesday May 6 at 8:15 AM Eastern. Continuing jobless claims sit at 1.94 million through the week ending April 19, the highest level since November 2024. Average duration of unemployment has climbed to 22.4 weeks from 20.1 weeks in October.
Manufacturing employment is the subindex that traders watch first inside the ISM release. The March print was 47.1, indicating contraction. Layoff announcements tracked by Challenger Gray have run elevated for three months in autos, fabricated metals, and primary metals. Texas, Pennsylvania, Ohio, and Michigan account for the bulk of the announced cuts. Order books reported in regional Fed surveys have improved modestly in April for the New York and Philadelphia districts.
The Federal Open Market Committee meets again June 16 and 17. The June meeting includes a fresh Summary of Economic Projections. Markets will price the path from now through year end based on what the dot plot reveals about how many committee members support cuts. The path between now and then runs through ECI Thursday, ISM and PCE Friday, and ADP and payrolls in early May. Each release will move the curve. Investors holding cash equivalents in T-bills, money markets, and short duration funds should expect the front end to move first when the data lands.