New York – Wall Street might have a tough time matching last week’s outstanding performance in the coming days, but inflation figures could be the impetus for extending the advance.
The Labor Department will release its Consumer Price Index for January on Wednesday, giving the Federal Reserve one of its primary indicators to gauge the pace of inflation. As Wall Street knows well, a larger-than-expected rise in inflation at the consumer level might nudge Fed policymakers toward raising interest rates to keep prices in line.
Remarks last week from Federal Reserve Chairman Ben Bernanke that economic growth and inflation are moderating sent stocks soaring last week, pushing the Dow Jones industrials to another series of record highs.
Bernanke gave investors what they were hoping for, some assurance that rates were likely to remain stable – as long as economic data support that trend.
But because there’s a continual stream of data for investors to parse, soothing words like Bernanke’s don’t tend to last long in the stock market. So the Consumer Price Index has the power to send stocks climbing further this week or bring the February rally to a halt.
As of Friday, analysts expected the CPI to show an increase of 0.1 percent in January, slower than December’s 0.4 percent. But they expected the core CPI – which strips out volatile food and energy prices – to register a rise of 0.2 percent, quicker than December’s 0.1 percent.
For more clues about where rates are headed, investors will pore over the Federal Open Market Committee’s minutes from its Jan. 31 meeting, which will be released Wednesday.
The central bank’s policymakers decided to leave the benchmark federal funds rate steady at 5.25 percent for the fifth straight meeting.
Beyond interest rates, Wall Street will look to see if the months-long surge in takeover deals continues.
No megadeals were announced last week, but reports that two companies are vying for aluminum producer Alcoa Inc. helped trigger last week’s big advance.
