The Federal Open Market Committee (FOMC) meets again this week to review economic conditions and set monetary policy. On whether the Fed should end quantitative easing or extend it, Atlanta Fed chairman Dennis Lockhart recently said that the Fed should remain flexible given the rising energy prices, which could be a sign of coming inflation. Either at this meeting or the next, the Fed could signal that interest rates will rise as a hedge against inflation.

Inflation will also be the focus when the Department of Labor releases the Producer Price Index (PPI) and Consumer Price Index (CPI) this week. Back in January the core PPI (which excludes energy and food costs) had its biggest jump in two years, and the core CPI had its largest uptick in more than year, the second month in a row in which consumer prices jumped.

U.S. stock futures are higher Wednesday morning as Sanofi-Aventis (SNY) agreed to purchase Genzyme (GENZ) and Dell (DELL) reported upbeat quarterly earnings.

Futures on the Dow Jones Industrial Average gained 30 points to 12,232 and S&P 500 futures rose 4.20 points to 1,330.50. Nasdaq 100 futures gained 5.50 points to 2,387.

U.S. stocks closed lower Tuesday, with the Dow Jones Industrial Average dropping 0.34% to close at 12,227.

Alcoa (AA), Intel (INTC) and JPMorgan Chase (JPM) will kick off a new earnings season this week when they report their results for the fourth quarter of 2010. Here's a quick look at what analysts surveyed by Thomson Reuters expect to see, followed by a glance at what's coming up on the economic calendar.

Alcoa

During its fourth quarter, Alcoa saw increased demand in emerging markets, sold surplus properties, and shared revenue targets with investors. Analysts forecast that earnings for the period will come to 19 cents per share, up from just a penny per share in the same quarter of last year. The New York-based aluminum producer also is expected to post revenue of $5.7 billion for the three months that ended in December, which is 4.5% more than a year earlier.

FedEx Corp. (FDX), the world's leading package delivery service and an ostensible bellwether of the U.S. economy, will dance its way onto the earnings stage this week. Also, with the holiday shopping season well underway, Best Buy Co. (BBY) and Discover Financial Services (DFS) are scheduled to offer up their most recent quarterly results.

Here's a closer look at what the analysts surveyed by Thomson Reuters are expecting from these three, plus a peek at the week's economic calendar.

According to the Labor Department, U.S. producer prices increased a seasonally adjusted 0.4% during October thanks mainly to an increase in energy prices.

Energy prices increased 3.7% during the month, the largest monthly increase since January. This increase was driven (so to speak) by a 9.8% increase in gasoline prices. Food prices dropped 0.1% during the month, with plunge led by a drop of 8.1% in the government's index for fresh and dry vegetables.

Last week, Macy's (M) and JCPenney (JCP) kicked off the retail earnings season by posting better-than-expected earnings for the most recent quarter. Many more quarterly reports from retailers are due this week, and by and large expectations of analysts surveyed by Thomson Reuters are high.

Walmart (WMT), the king of retailers, is expected to buck the trend, though. Analysts anticipate that the Bentonville-based company will report that its third-quarter earnings grew only 6.7% year-over-year to 90 cents per share. During the three months that ended in October, Walmart announced an acquisition in South Africa and kicked-off the holiday shopping season, and revenue for that period is predicted to have risen 3.0% to $102.4 billion. Looking ahead to the fourth quarter, analysts so far expect sequential and year-over-year growth of both earnings and revenue. Walmart results have not fallen short of consensus estimates in the past five quarters.

U.S. Federal Reserve Chairman Ben Bernanke gave his reasons for more quantitative easing, dubbed QE2, in a speech at the Federal Reserve Bank of Boston, and reported in the Wall Street Journal.

The linchpin of his thesis is that inflation is too low, currently running at 1.1%. This is lower than the 2% level that the Fed had previously set.

Bernanke gave a rather gloomy assessment of the economy, saying that business spending has slowed, consumer finances are improving unevenly, housing remains depressed and job growth isn't enough to bring down unemployment.

The earnings season kicked off last week with better-than-expected results from Alcoa (AA) and Yum! Brands (YUM), while Marriott (MAR) and Pepsico (PEP) met consensus EPS estimates. This week, bellwether companies Intel (INTC), General Electric (GE), Google (GOOG) and JPMorgan Chase (JPM) are scheduled to report their third-quarter results, and analysts polled by Thomson Reuters are looking for earnings growth from all of them.

Santa Clara, Calif.-based Intel announced the acquisition of McAfee and joint ventures with General Electric and Nokia (NOK) during its third quarter. Analysts forecast earnings for that period to come to 50 cents per share, which is up 34.0% from the same period of last year. The number one semiconductor maker's revenue for the three months ended in September is expected to total $11.0 billion, or 17.1% more than a year earlier. Looking ahead to the full year, the forecast thus far is for earnings of $1.94 per share (+44.8%) and $43.3 billion in revenue (+23.4%). The per-share earnings topped analysts' expectations in the past four quarters, by as much as a dime per share.

The Labor Department reported that producer prices rose 0.4% in August, more than the 0.3% analysts expected, the New York Times reported. This was also double the July figure of 0.2%. But when food and energy prices were removed, the core index rose only 0.1%, meaning inflation was in food and energy.

With these numbers, the government no doubt will loudly proclaim that inflation is not a problem. If you multiply 0.3% by 12 (the difference between the overall index and the core index), you get 3.6% -- all of it in food and energy.

Last week, the Fed's Beige Book report confirmed that the economy continues to grow, but at a slower pace than in previous periods. This week will bring plenty of economic data to either support or contrast with the Fed's findings.

• Monday: Federal government budget balance for August
• Tuesday: Business inventory numbers from July, TIPP Economic Optimism Index for September, retail sales data from August
• Wednesday: Industrial production in August, Empire State Manufacturing Survey for September, Import Price Index for August
• Thursday: Producer Price Index for August, Philly Fed Survey for September, the Current Account Balance in the second quarter, jobless claims for last week
• Friday: preliminary University of Michigan Consumer Sentiment Index, Consumer Price Index for August, real earnings data for August

The Labor Department reported that producer prices rose 0.2% in July. Excluding food and energy, core producer prices rose 0.3%. Core prices are up 1.5% the the past year.

Last Friday the Labor Department reported that consumer prices rose in July.

The Labor Department's numbers for core prices are real joke. We spend most of our income on basics: food and energy. If you think there is no inflation, look at these numbers:

If there's an inflation hawk that's still circling, no doubt it will now be headed back to its nest. For a long time.

The reason? The April producer price index report, which revealed an 0.1% price decline in April, and an 0.2% rise excluding food and energy. Further, the core-PPI is up a scant 1.0% in the past 12 months, and when combined with the 1.1% increase in the core consumer price index in the same period, the picture is one of disinflation. Even worse, the threat of deflation continues.

The most compelling statistic, so far in 2010, from an investment standpoint? Arguably, it's inflation, or the lack thereof.

More than 12 months in to the biggest fiscal stimulus in the history of the modern world, and more than 15 months into the Fed's quantitative easing program, inflation, as measured by the Consumer Price Index, is running at ... about 2.3% since April 2009, according to data compiled by the U.S. Labor Department. Further, take away the volatile food and energy component, and inflation at the retail level is running at a minuscule 1.1% since April 2009.

Best Buy Inc. (BBY), which was a favorite on Black Friday, announced a partnership with Netflix (NFLX) and another one with Google (GOOG), as well as declared a quarterly dividend, during its fiscal third quarter. For the three months that ended in November, Best Buy is expected to report that earnings rose 18.6% from a year ago to $0.43 per share. Revenue is expected to total $11.9 billion, or 4.2% higher than a year ago. The full-year forecast is for a profit of $2.95 per share (+2.4%) on $48.6 billion (+7.8%) in sales. This Richfield, Minn.-based company has topped earnings estimates in three of the past four quarters, by as much as 21 cents per share.

Best Buy's long-term EPS growth forecast of 12.5% is better than that of Walmart (WMT). Best Buy's earnings multiple is 14x. Analysts, on average, recommend buying BBY and have for more than 90 days; two analysts recently raised their earnings estimates. The mean price target is $44.77. Shares have risen 11.5% in the past three months and recently reached a new 52-week high of $44.50.

2008's economy can be divided into two parts. The first is the period between January and July when oil prices ran up to $147 thanks to a speculative trade to short the dollar and buy oil and other commodities. The second part is the post oil's July peak where oil prices have featured a 60% to $55. Today's wholesale price report shows what happens to prices when supply exceeds demand and banks stop lending money to traders trying to profit from anticipated inflation.

Today's wholesale price report is a doozy. The Producer Price Index (PPI) fell 2.8% in October -- much more than the 1.8% decline economists had anticipated. The PPI decline was fueled (pun intended) by a 12.8% decline in energy prices in October. And as long as those energy prices keep falling, inflation will be in full downswing mode. (I am happy to report that I won my bet that gasoline would drop below $1.99 a gallon in Eastern Massachusetts by February -- I went to a station Sunday that charged $1.97.)

But there's more to it than simply declining oil prices. The entire economy was producing goods and services based on an assumption about demand that depended on easy access to debt. By shutting off the debt flow, goods are simply too expensive for consumers and businesses to pay the price. This means businesses will cut back on production and slash prices to clear their shelves of inventory. Then they'll shut down factories and lay off workers. And the lower demand from those poorer former workers will start the cycle anew.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.