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Today’s drop in stocks–a drop of 1.04% for the Standard & Poor’s 500 and a loss of 2.55% for the NASDAQ Composite at the close on May 10–is a reminder that runaway economic growth is only one horn of the financial market’s fears about the Federal Reserve and higher interest rates.

Friday’s weaker than expected jobs gains for April–just 266,000–did for the moment lessen fears that the Federal Reserve would raise interest rates on a surging jobs market. In just one day we went from the possibility that we’d get the three or more months with jobs gains of near 1 million–the rough indicator that Fed chair Jerome Powell has said he is looking for before thinking about raising rates–to worries that the economy, or at least the labor market, was stalling. Along with the weak April number, statisticians revised the March total down from more than 900,000 to 770,000.

All that led to a rally in stocks on Friday, May 7, on bad news that was, from an interest rate perspective, good news.

Today, however, the financial markets are focused on inflation as the factor that could lead the Federal Reserve to act. (The Fed typically raises interest rates to slow the economy and damp inflation in order to get ahead of a potential inflationary trend.)

The Bureau of Labor Statistic is set to report the Consumer Price Index (CPI) for April on Wednesday before the financial markets open. Right now, economists are projecting a significant jump in inflation for April. That would follow on a 0.6% increase in the headline CPI in March, the largest one-month increase since August 2021, that took the all-item CPI to a 2.6% increase for the last 12 months. (That 2.6% annual rate would be significantly above the Federal Reserve’s target of 2% inflation, although it is important to note that the Fed doesn’t use the CPI as its inflation measure but instead relies on the Personal Consumption Expenditures price index, which can deviate significantly from the CPI. The PCE was running at a 2.3% 12-month rate in March.)

The all-items CPI is the number that gets reported but it’s not the version of the CPI that counts. Instead economists and Wall Street follow the core CPI, which excludes the volatile price changes in food and energy. The core CPI climbed just 0.3% in March and was up 1.6%–below the Fed’s inflation market–for the 12 months ended in March. (Energy prices soared in March with the gasoline index rising 9.1% in the month.)

The problem for the markets today is that no one knows what the numbers will show on Wednesday morning and asset prices are volatile enough that no one whats to be caught on the wrong side of the news. That led to a big increase in hedging to protect against a market slide on the news. The CBOE S&P 500 Volatility Index (VIX), which fell 9.2% on Friday as everyone felt the bad job news took interest rate risk out of the market, climbed 11.38% today to 18.59 as investors and traders decided to pay up ahead of Wednesday’s risk event. Today’s gain in the VIX I’d note still left the “fear Index” below its Wednesday May 5 close at 19.15. On that day the VIX slipped 1.69%.