Next week’s list of important economic events and releases will be highlighted by the FOMC’s rate decision on Wednesday, March 16 at 2 p.m. ET. Fed’s Powell will hold a press conference at 2:30 p.m.
The long-awaited Fed hike is expected at this time. The question is “Will the Fed surprise the market with a 50 basis point hike or will it stick to 25 basis points?”.
Expectations are 25 basis points.
The last time the Fed raised rates was in December 2018, when the Fed raised 25 basis points to reach a target range of 2.25% to 2.50%. On March 16, 2020, the Fed cut rates to a target range of 0% to 0.25%. It has remained at this level ever since.
With CPI inflation rising to 7.9% to reach its highest level in 40 years, it is time for the tightening process to begin.
Fed Chairman Powell signaled his preference for 25 basis points during his testimony on Capitol Hill in early March. However, he said he would not be opposed to a 50 basis point hike if inflation did not start to improve (see his comments HERE and HERE).
The Fed will also give its latest central trends for GDP, unemployment and PCE inflation. In December, they set the end of 2022 central tendency expectations at:
- Real GDP: 3.6% – 4.5%
- unemployment rate 3.4% – 3.7%
- PCE inflation 2.2% – 3.0%
- Core PCE inflation 2.5% – 3.0
I would expect the GDP to be revised lower, the unemployment rate to remain somewhat stable. PCE inflation will rise, as will the core PCE.
Meanwhile, the dot chart forecast saw the fed funds rate drop from 0.75% to 1.00% when it was last released in December (three Fed tightenings). It will also increase with 4 or 5 most likely. Some private economists predict up to seven tightenings in 2022
Other key events in the US next week include:
- US PPI data will be released Tuesday at 8:30 a.m. with expectations of 0.9% m/m versus 1.0% last month. Year-on-year final demand is expected to come in at 10.0% versus 9.7% last month. Excluding food and energy, we expect an increase of 0.6% against 0.8% and 8.7% against 8.3% last month year-on-year.
- Retail sales Wednesday at 8:30 a.m. ET. Expectations are 0.5% versus 3.8% last month. Core retail sales (excluding autos) are expected to rise 1.0% from 3.3%
- US industrial production data will be released on Thursday with expectations of 0.6% versus 1.4% last month.
- The Fed’s monthly regional activity clues kicks off with the Empire State Manufacturing Index on Tuesday at 8:30 a.m. Expectations are 6.9 from 3.1 last month. As of 8:30 a.m. Thursday, the Philadelphia Fed manufacturing index is expected at 15.1 from 16.0
Other key events/outputs include:
- bank of england interest rate decision Thursday at 8 a.m. ET. Expectations are for another 0.25 basis point rise from 0.5% to 0.75%. It would be the third consecutive hike and the second of 25 basis points after a 50 basis point hike to kick off the rate hike cycle. The hike would bring the rate back to pre-pandemic levels in 2020. UK January CPI inflation at 30-year high
- The Reserve Bank of Australia will release the minutes of its monetary policy meeting on Tuesday at 8:30 p.m. ET (Monday evening). On March 8, the Lowe’s Reserve Bank of Australia said it was plausible that the spot rate would rise later this year.
- The Australian employment change will be released Thursday in Australia at 8:30 p.m. ET (Wednesday evening). Expectations are for a change of 40.3K from 12.9K last month. Unemployment rate expected to fall to 4.1% from 4.2%
- Canada will release its CPI data on Wednesday at 8:30 a.m. ET. Expectations are for a 0.9% increase month over month. Core CPI YOY is expected at 2.4%, Median CPI YOY at 3.4% and Core CPI at 4.1%.
Then there is the geopolitical risk of Ukraine/Russia. The Russian stock exchange was closed all week. Nickel futures at the LME were also closed after hitting $100,000 earlier this week.