Ahead of Friday’s release of non-farm payroll data, market attention is likely to be on the one-hour conversation between IMF Managing Director Lagarde and Fed Chair Yellen on 6 May at a conference in Washington DC (starting at 09:15 ET). Markets are particularly likely to watch for hints on two fronts: (1) Any reference to US dollar (USD) appreciation and its impact on the US economy and inflation. The latest statement indirectly referenced the USD’s impact on inflation by mentioning “decreasing prices of non-energy imports”. (2) The extent to which Chair Yellen dismisses weak Q1 growth (0.2%); in the past, Yellen has emphasised the need to be ‘forward looking’, which she could reiterate. The recent wage acceleration in the employment cost index has weakened her case regarding labour market softness, but she may stress that better US data is needed to start tightening.
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