(Bloomberg) — The Federal Reserve’s favored price gauge and a snapshot of consumer demand are seen as supporting both the central bank’s aggressive interest rate cuts and Chairman Powell’s view that the economy remains strong.
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Economists see the personal consumption expenditures price index rising just 0.1% in August for the second time in three months.An inflation gauge is likely to have risen 2.3% from a year earlier, the smallest annual increase since the start of 2021 and just above the central bank’s 2% target.
The slowing year-on-year inflation rate reflects lower energy and food prices, as well as easing core costs. Economists expect the PCE price index, which excludes food and fuel, to rise 0.2% for a third straight month in government data due on Friday.
Easing inflationary pressures since the start of the year gave Fed policymakers enough confidence to cut interest rates by half a percentage point on Sept. 18. The cut was the first in more than four years and represented a shift in the central bank’s policy to head off a worsening job market.
Investors will have plenty of comments to digest next week from numerous Fed officials, including presidents Michelle Bowman, Adriana Kugler and Lisa Cook, as well as regional presidents Raphael Bostic and Austan Goolsbee, who are scheduled to appear at various events.
The August inflation numbers were accompanied by data on personal consumption and income, leading economists to predict further robust growth in household spending. Sustained growth in consumer spending helps improve the chances that the economy will continue to expand.
Other economic data includes new home sales for August, second-quarter GDP and revised GDP for the year to 2019, weekly jobless claims and durable goods orders for August.
Bloomberg Economics:
“In our view, a big Fed rate cut would make a soft landing more likely, but by no means guarantee it. Our baseline is for the unemployment rate to reach 4.5% by the end of 2024, rising to 5% next year.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou, and Chris G. Collins, Economists. For a more detailed analysis, click here.
In Canada, July GDP data and preliminary August figures suggest that third-quarter growth will be weak, below the Bank of Canada’s forecast of an annualized growth rate of 2.8 percent. Meanwhile, Bank of Canada Governor Tiff Macklem is scheduled to speak at a banking conference in Toronto.
Elsewhere, the OECD will release new economic forecasts on Wednesday, the Swiss and Swedish central banks may cut interest rates, and Australia’s central bank is expected to keep rates on hold.
Click here to read about last week’s events, and below for our outlook for the global economy.
Asia
The Reserve Bank of Australia is expected to keep its interest rate target at 4.35% when it meets on Tuesday, with the focus on whether Governor Michele Blok will maintain a hawkish stance after strong labor data led traders to scale back expectations of a December rate cut.
Bloomberg Economics still sees the RBA as likely to ease monetary policy in the fourth quarter, and Australian officials will have to wait until Wednesday to know whether August inflation fell for a third straight month.
Australian Treasurer Jim Chalmers said Sunday he hoped upcoming data would show encouraging progress in tackling inflation, but acknowledged the central bank may not be ready to cut interest rates this week.
Other countries releasing inflation updates include Malaysia and Singapore, where price growth is expected to slow in August.
Japan will get new inflation data on Friday when Tokyo releases its consumer price index, which is expected to have risen above the Bank of Japan’s 2% target in September.
September purchasing managers’ indexes are due from Australia and India on Monday, followed by Japan the following day.
In China, one-year medium-term lending rates are expected to be kept unchanged at 2.3 percent and data due on Friday will show whether industrial profit growth maintained momentum in August after posting its fastest expansion in five months in July.
Trade statistics are due to be released from South Korea, Thailand and Hong Kong.
Europe, Middle East, and Africa
With four European central banks due to make policy decisions, investors may be questioning whether policymakers will be keen to follow the Fed’s lead and deliver a half-point rate cut.
That’s exactly what the Swiss National Bank is doing at its meeting on Thursday. Most economists are expecting a quarter-point cut, but observers say the U.S. cut makes a hike of a similar size more likely as regulators face a continuing strong franc. It’s the last meeting for Governor Thomas Jordan, whose term ends at the end of the month.
The previous day, Sweden’s central bank cut borrowing costs by 0.25 percentage points for the third time this year, taking interest rates to 3.25%, and is expected to pave the way for further rate cuts.
Current guidance calls for two or three more rate cuts in 2024, with Wednesday being one of them. Policymakers discussed a half-point cut when they met last month and the discussion could come up again, but most economists think the central bank is more likely to wait until November to make a bigger cut.
Meanwhile in Eastern Europe, the Hungarian central bank is expected to cut interest rates by 0.25 percentage points on Tuesday, and the Czech central bank on Thursday.
In the euro area and UK, preliminary purchasing managers’ index results for September are due to be released on Monday, giving an indication of private sector activity at the end of the third quarter.
With German weakness at the forefront of investors’ attention, attention on Tuesday will be on the Ifo business confidence index, the same day Bundesbank President Joachim Nagel is due to speak on the economy, and a new forecast from the country’s economic institute is due to be released on Thursday.
Data from France will be closely watched by both investors and the new finance minister, Antoine Armand, as the euro zone’s second-largest economy saw its PMI rise in August due to the Olympics but the impact is likely to have faded this month. A consumer confidence index is also due to be released.
September inflation figures for France and Spain will be in focus on Friday as they provide a pointer to the region’s overall results next week. Economists expect inflation in both countries to fall below 2%.
In addition to Nagel, more than a half-dozen euro zone policymakers are due to speak, including European Central Bank President Christine Lagarde, chief economist Philip Lane and the new head of the Bank of Spain, Jose Luis Escriba.
Various central bank decisions are also due across the continent.
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Nigerian authorities are expected to pause on Tuesday a tightening cycle that has raised interest rates from 11.5% to 26.75% in just over two years. They will be encouraged by a drop in inflation to a six-month low as they consider the impact of the country’s floods and high gasoline prices on price increases.
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Morocco’s central bank will probably keep interest rates on hold at 2.75% to allow time for a surprise June rate cut to filter through to domestic markets. The country needs low interest rates to encourage investment and curb unemployment. It has big plans to invest in rebuilding earthquake-hit areas and building infrastructure ahead of the 2030 FIFA World Cup.
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In southern Africa, with inflation remaining high, officials in Lesotho could go against South Africa’s cuts and keep borrowing costs steady at 7.75%. Lesotho tends to copy the policies of its neighbors, but its key interest rate is already 25 basis points lower.
Meanwhile, Zambia’s Finance Minister Situmbeko Musokotwane is due to present the 2025 budget for Africa’s second-largest copper producer on Friday, laying out plans to help the economy recover from one of its toughest years this century.
latin america
Watchers of the Brazilian economy have a lot to digest, as attention will be focused on the minutes of the Brazilian Central Bank’s September interest rate meeting and quarterly inflation report.
The former is likely to provide a more detailed policy roadmap after raising it by 0.25 percentage points to 10.75% on September 18, while the latter will update all sorts of economic forecasts and scenarios. Expect the BCB to revise upwards its forecasts for inflation, key interest rates and GDP growth.
Brazil’s final employment report for the week in Latin America’s largest economy will show that the country’s labor market remains historically tight while inflation in the middle of the month may be hovering near the top of the central bank’s target range.
Argentina is due to release a GDP proxy for July that may support the view that the economy has passed the 2024 trough and is on track to recover in the second half of the year.
In Mexico, weaker domestic demand could lead to renewed weakness in retail sales following year-on-year and monthly declines in June, while mid-month inflation data is unlikely to give policymakers a conclusive basis for whether to cut or keep interest rates unchanged when the Bank of Mexico meets in a few days.
The early consensus is for a 0.25 percentage point cut to 10.5 percent, but some analysts see a possible half-point cut to match the Fed’s pace.
–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill, and Souhail Karam.
(Updates from Australia’s Treasurer in the Asia section and France in the EMEA section)
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