(Bloomberg) — The Federal Reserve’s preferred price gauge and a snapshot of consumer demand support both the central bank’s aggressive interest rate cutting and Chairman Jerome Powell’s view that the economy remains strong.
Bloomberg’s most read articles
Economists estimate the personal consumption expenditure price index will rise just 0.1% in August, the second time in three months. The inflation gauge likely climbed 2.3% from a year earlier, the smallest annual increase since early 2021 and slightly above the central bank’s 2% target.
The slowdown in inflation from a year ago reflects lower energy and food prices, as well as moderating core costs. The consumer price index excluding food and fuel likely rose 0.2% for a third straight month, according to government data released Friday by economists.
The decline in inflationary pressures seen earlier this year gave Fed officials enough confidence to cut rates by half a percentage point on September 18. The cut, the first in more than four years, represents a shift in the central bank’s policy aimed at preventing a deterioration in the jobs market.
Investors will be scrutinizing statements from a slew of Fed officials in the coming week. Governors Michelle Bowman, Adriana Kugler and Lisa Cook, as well as regional presidents Raphael Bostic and Austan Goolsbee, are among those scheduled to participate in various events.
August’s inflation figures will be accompanied by data on household spending and income, and economists are forecasting continued solid growth in household spending. Sustained growth in consumer spending helps increase the chances of continued economic expansion.
Other economic data include August new home sales, second-quarter gross domestic product and annual GDP revisions through 2019, weekly jobless claims and August durable goods orders.
What Bloomberg Economics says:
“We believe the Fed’s drastic rate cut increases the chances of a soft landing, but by no means guarantees it. Our base case remains that the unemployment rate will reach 4.5% by the end of 2024, before climbing to 5% next year.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For a full analysis, click here
In Canada, GDP data for July and a flash estimate for August are expected to show weak growth in the third quarter, likely below the Bank of Canada’s forecast of 2.8% annualized growth. Meanwhile, central bank Governor Tiff Macklem will speak at a banking conference in Toronto.
Elsewhere, the OECD will release new economic forecasts on Wednesday, central banks in Switzerland and Sweden could cut rates, and their Australian counterpart is expected to keep its key rate unchanged.
Click here to find out what happened last week and below, our summary of what’s happening in the global economy.
Asia
The Reserve Bank of Australia is expected to keep its interest rate target unchanged at 4.35% at its board meeting on Tuesday, with the focus likely to be on whether Governor Michele Bullock maintains her aggressive tone after strong jobs figures prompted traders to trim bets on a December rate cut.
Bloomberg Economics still sees scope for RBA easing in the fourth quarter. Authorities will have to wait until Wednesday to see whether Australian inflation slowed for a third straight month in August.
Speaking on Sunday, Australian Treasurer Jim Chalmers said he expected upcoming data to show encouraging progress in tackling inflation, but acknowledged the central bank might not be ready to cut interest rates this week.
Other countries publishing inflation updates include Malaysia and Singapore, where price growth is expected to have slowed in August.
Japan has fresh inflation data with the release of Tokyo consumer prices on Friday, which are expected to have risen at a pace above the Bank of Japan’s 2% target in September.
Purchasing managers’ indices for September are due in Australia and India on Monday, and in Japan a day later.
In China, the one-year medium-term lending rate is expected to remain unchanged at 2.3%, and data on Friday will show whether industrial profit growth maintained its momentum in August after expanding at its fastest pace in five months in July.
Trade statistics are expected from South Korea, Thailand and Hong Kong.
Europe, Middle East, Africa
Four central bank decisions are scheduled in Europe, where investors may wonder about the appetite of policymakers to follow in the Fed’s footsteps with a half-point cut.
That’s certainly the case at the Swiss National Bank on Thursday. While a majority of economists expect a quarter-point hike, observers say the U.S. cut has increased the odds of a similar hike as policymakers grapple with the continued strength of the franc. It’s the last meeting for President Thomas Jordan, whose term ends at the end of the month.
The day before, Sweden’s Riksbank was expected to cut borrowing costs by a quarter point for the third time this year, taking the rate to 3.25%, and outline a path to further cuts.
Current forecasts call for two or three more measures in 2024, including Wednesday’s. Policymakers discussed a half-point reduction at last month’s meeting, and while that discussion could be brought up again, most economists think the central bank would likely wait until November to make a deeper cut.
In Eastern Europe, Hungary’s central bank is expected to make quarter-point rate cuts on Tuesday, as is its Czech counterpart on Thursday.
In the eurozone and the UK, a first look at purchasing managers’ indices for September will be released on Monday, signalling the state of private sector activity at the end of the third quarter.
With the weakness of the German economy at the forefront of investors’ concerns, the Ifo business confidence index will be one of the highlights on Tuesday, the same day that Bundesbank President Joachim Nagel is due to comment on the economy. New forecasts from the country’s economic institutes are expected on Thursday.
French economic data will be closely watched by investors and the country’s new finance minister, Antoine Armand. PMIs in the eurozone’s second-largest economy got an Olympic boost in August, but that effect is expected to fade this month. Consumer confidence figures are also due.
French and Spanish inflation figures for September will draw attention on Friday, providing a glimpse of the region’s overall results the following week. Economists expect both countries’ figures to fall below 2%.
In addition to Nagel, more than half a dozen euro zone policymakers are expected to speak, including European Central Bank President Christine Lagarde, chief economist Philip Lane and the new head of Spain’s central bank, José Luis Escriva.
Across the African continent, various central bank decisions are also planned:
-
Nigerian authorities are likely to halt on Tuesday the tightening cycle that has taken the interest rate from 11.5 percent to 26.75 percent in just over two years. They will be encouraged by inflation slowing to its lowest level in six months as they assess the impact of flooding in the country and a sharp increase in gasoline prices on price growth.
-
Morocco’s central bank is expected to keep its key interest rate at 2.75% to allow time for the surprise June rate cut to feed through to the domestic market. The kingdom needs low rates to facilitate investment and contain unemployment. It has massive investment plans to rebuild earthquake-hit areas and infrastructure ahead of the 2030 FIFA World Cup.
-
In southern Africa, Lesotho’s authorities may deviate from South Africa’s interest rate cut and leave borrowing costs at 7.75% as inflation remains high. While Lesotho is likely to emulate its neighbour’s policy, its policy rate is already 25 basis points lower.
Elsewhere, Zambian Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy bounce back from one of its toughest years this century when he unveils his 2025 budget for Africa’s second-largest copper producer.
Latin America
Brazil watchers will have a lot to digest, with the minutes of the central bank’s September rate meeting and a quarterly inflation report taking center stage.
The former could provide a more detailed policy roadmap after a quarter-point hike on September 18 to 10.75%, while the latter will update all sorts of economic estimates and scenarios. Expect the BCB to revise upwards its forecasts for inflation, policy rate and GDP growth.
Rounding out the week for Latin America’s largest economy, employment data will likely show Brazil’s labor market remains at historically tight levels, while mid-month inflation may have stalled near the top of the central bank’s target range.
Argentina is expected to release indicative GDP figures for July, which could support the view that the economy has passed its 2024 nadir and is beginning a recovery in the second half of the year.
In Mexico, weaker domestic demand could lead to another round of weak retail sales – after June’s negative annual and monthly figures – while mid-month inflation data is unlikely to provide policymakers with sufficient reason to cut or hold rates when the Banxico meets a few days later.
The initial consensus is for a quarter-point cut to 10.5%, although some analysts see a possible half-point cut to stay in line with the Fed.
–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill and Souhail Karam.
(Updates with Treasurer Australia in Asia section, France in EMEA section)
Bloomberg Businessweek’s Most Read Articles
©2024 Bloomberg LP
