(Bloomberg) — Federal Reserve policymakers may finally be on the verge of cutting interest rates.
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Investors were broadly unchanged on Wednesday afternoon at this week’s two-day policy meeting in Washington on the likelihood that the Federal Reserve will begin lowering borrowing costs at its next decision in March.
That makes Fed Chairman Powell’s press conference and any signals he may or may not choose to send critical. It all depends on how Powell and his colleagues interpret the recent deluge of economic data.
On the one hand, inflation data continues to drop unexpectedly. Data released on Friday showed that the Federal Reserve’s preferred indicator fell to 2.9% in December, falling below 3% for the first time since early 2021.
On the other hand, consumer spending has been unexpectedly strong, no doubt buoyed by lower inflation, but that strength may still continue to cause some to worry that price pressures could rise again.
Bloomberg Economics’ view:
“The Fed is well positioned to cut interest rates in the coming months. We expect the Fed to begin lowering the federal funds rate target range in March in an attempt to maintain a soft landing.”
—Stuart Paul and Estelle Ou. For the full analysis, click here
Putting aside the Fed’s decision, we will get more U.S. data in the coming week. Most important is Friday’s monthly jobs report. Tuesday’s job openings and consumer confidence data – along with the quarterly employment cost index released on Wednesday during the Fed meeting – will also help get a real sense of the spending outlook.
Statistics Canada released massive gross domestic product data by industry for November after three consecutive months of flat growth. The economy would shrink if it were not for the population boom caused by uncontrolled temporary migration.
Elsewhere, decisions from the UK and Sweden’s central banks are likely to keep interest rates on hold, while three Latin American central banks will cut rates.
Euro zone inflation and GDP data and Chinese business surveys will also be in focus for investors, with the International Monetary Fund releasing new forecasts on Tuesday.
Click here to see what happened last week, and here’s our summary of what’s coming to the global economy.
China on Wednesday releases a purchasing managers’ index that will reveal the current state of the world’s second-largest economy.
Both manufacturing and services have softened since September, with factory activity falling further and discussions continuing about the need for more stimulus to support weak growth.
The official data will be followed by a report on China’s private sector PMI, along with corresponding data for other countries in the region, which has seen sluggish levels of economic activity partly due to a lack of economic growth in its giant neighbours.
The week kicked off with the Monetary Authority of Singapore’s first decision since the move to quarterly meetings and the departure of long-time governor Ravi Menon.
A summary of comments from BOJ board members at a January meeting will provide further clues as to how close the central bank is to raising interest rates for the first time since 2007. March or April are considered in-person meetings.
The Philippines, Taiwan and Hong Kong will release fourth-quarter economic growth data this week.
Australian quarterly inflation data will be released on Wednesday, days before the central bank is expected to decide on policy at its first meeting of the year.
South Korean trade data provides a pulse check on global trade, with inflation data also due this week.
Meanwhile, a majority of Thais believe the country is suffering an economic crisis that needs urgent resolution, according to a survey released on Sunday that showed citizens have mixed views on the government’s planned $14 billion cash handouts.
Europe, Middle East, Africa
Three central bank decisions will attract attention in Europe:
The Bank of England is likely to back away from its threat to raise interest rates again if needed after UK wage growth cooled at one of its fastest rates on record. Still, there are reasons to be cautious, especially after data showed inflation unexpectedly rose last month. Thursday.
Riksbank officials have said there is no need to raise borrowing costs again, but their decision on the day may indicate how determined they are to keep interest rates high for now.
In Hungary on Tuesday, policymakers are likely to cut borrowing costs again. Most economists expect rates to fall 100 basis points to 9.75%.
This week is also important for data, with EU countries releasing growth and inflation figures.
Belgium and Sweden are due to release such reports on Monday, followed by several countries including Germany, France, Italy and Spain the next day.
For the euro zone, economists expect the economy to shrink by 0.1% in the second quarter, in line with the typical definition of a recession.
Inflation reports from across the region are also imminent, culminating with results for the currency area as a whole on Thursday.
The index is forecast at 2.7%, still well above the ECB’s target, while the so-called core indicator, which strips out energy and such volatility, is likely to remain higher.
In addition to Europe, several other central banks will also make announcements:
Monday’s decision by Ghana’s central bank is a possible interest rate cut. Inflation continues to slow, keeping real interest rates among the highest in the world. Even so, the International Monetary Fund warned against easing monetary policy.
It comes on the same day that Zimbabwe can explain its plans to deal with a slump in its currency, which has lost more than a third of its value against the dollar on official markets so far this year.
Lesotho, whose currency is pegged to the South African rand, is likely to follow its neighbors on Tuesday and keep its key interest rate at 7.75% to support its economy.
On Wednesday, Mozambique was likely to keep borrowing costs unchanged to curb inflation, even as the International Monetary Fund said there was room for cuts.
Egyptian officials are set to meet the next day amid the worst economic crisis in decades, with investors ultimately anticipating a currency devaluation. The central bank is likely to keep rates at 19.25% while negotiations with the International Monetary Fund continue.
Among data highlights, data on Wednesday could show Saudi Arabia’s economy shrank for a second straight quarter at the end of 2023, with previous contractions largely reflecting oil production cuts that pushed up prices. This transformed it from one of the fastest growing economies in the Group of 20 to a shrinking economy. -Add members to one of the laggards.
Brazil’s central bank telegraphed on Wednesday that it would cut interest rates for the fifth consecutive half percentage point to 11.25% and for the sixth time at the March meeting.
Analysts surveyed by the bank expect inflation to hit 9% by the end of the year, but given the stickiness of inflation expectations, there is little room for maneuver after that.
Brazil also released December year-end industrial production and national unemployment rates.
Colombia’s central bank is also almost certain to cut interest rates for a second consecutive month, although analysts are divided on the extent of the cut. Lower-than-expected inflation data for December convinced the bank to cut interest rates by half a percentage point to 12.5%.
Chile’s central bank has much more room for maneuver and is likely to vote for a 100 basis point cut in interest rates to 7.25%. Economists surveyed by the bank expect inflation to return to the 3% target this year.
On the inflation front, data from Peru’s metropolitan capital Lima is likely to show consumer price increases picking up from 3.24% in December. Brazil released the less-watched IGP-M price index, the country’s broadest gauge of inflation.
At the end of the week, flash reports on Mexico’s fourth-quarter output should show a slowdown from 1.1% growth in the three months to September, a slowdown that exceeds more than a year of double-digit borrowing costs.
–With assistance from Robert Jameson, Peter Skolimowski, Laura Dillon Cain, Paul Jackson, and Monique Vanek.
(Update from Thailand in Asia section)
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