(Bloomberg) — The Federal Reserve’s preferred price benchmark and a snapshot of consumer demand are confirming both the central bank’s aggressive rate-cutting drive and Chairman Jerome Powell’s view that the economy remains strong.
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Economists expect the personal consumption price index to rise by just 0.1% in August for the second time in three months. The inflation gauge likely rose 2.3% from a year earlier, the smallest annual increase since early 2021 and a fraction above the central bank’s 2% target.
The slowdown in inflation from a year ago reflects falling energy and weaker food prices, along with moderating core costs. The PCE price gauge excluding food and fuel likely rose 0.2% for the third straight month, economists expect government data to show on Friday.
The decline in inflationary pressures earlier this 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 prevent a deterioration in the labor market.
Investors will be scrutinizing remarks from a host of Fed officials in the coming week. Governors Michelle Bowman, Adriana Kugler and Lisa Cook, along with regional presidents Raphael Bostic and Austan Goolsbee, are among those scheduled to appear at various events.
August’s inflation figures are accompanied by data on personal spending and income, and economists are forecasting another solid rise in household spending. Continued growth in consumer spending increases the likelihood that the economy will continue to expand.
Other economic data includes August new home sales, second-quarter gross domestic product, annual GDP revisions from 2019 onwards, weekly jobless claims and August durable goods orders.
What Bloomberg Economics says:
“We believe the Fed’s jumbo cut increases the likelihood of a soft landing, but it certainly doesn’t guarantee one. Our baseline is still for the unemployment rate to reach 4.5% before the end of 2024, before rising 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 expansion. Meanwhile, central bank Governor Tiff Macklem is scheduled to speak at a banking conference in Toronto.
Elsewhere, the OECD will release new economic forecasts on Wednesday, central banks in Switzerland and Sweden may cut interest rates and their Australian counterparts are expected to leave policy unchanged.
Click here for the events of the past week. Below you will find an overview of developments in the global economy.
Asia
The Reserve Bank of Australia is expected to leave its cash rate target unchanged at 4.35% when its board meets on Tuesday. The focus will likely be on whether Governor Michele Bullock maintains her hawkish tone after strong labor market data prompted traders to reduce bets on a December rate cut.
Bloomberg Economics still sees a path to possible RBA easing in the fourth quarter. Authorities will have to wait until Wednesday to see if Australian inflation cooled for a third month in August.
Other countries that publish inflation figures are Malaysia and Singapore, where price growth is expected to have slowed in August.
Japan will get fresh inflation data on Friday when consumer prices are released in Tokyo, which are expected to have risen faster than the 2% target set by the Bank of Japan in September.
The September purchasing managers’ indexes from Australia and India will be released on Monday, and from Japan a day later.
In China, the yield on medium-term 1-year debt is expected to remain unchanged at 2.3%. Data on Friday will show whether industrial profit growth maintained its momentum in August, after hitting its fastest pace in five months in July.
Trade statistics are expected from South Korea, Thailand and Hong Kong.
Europe, Middle East, Africa
There are four central bank decisions coming up in Europe, with investors potentially wondering whether policymakers are prepared to follow in the Fed’s footsteps and cut rates by half a percentage point.
That’s certainly the case with the Swiss National Bank on Thursday. While a majority of economists expect a quarter-point move, observers estimate that the U.S. cut has raised the odds of a move of the same magnitude as officials grapple with the franc’s continued strength. This is the final meeting for President Thomas Jordan, whose term ends at the end of the month.
Sweden’s Riksbank is expected to cut borrowing costs for the third time this year by a quarter of a percentage point, taking the rate to 3.25%. The bank will also set out a path for further cuts.
Current guidance is for two or three more steps in 2024, including Wednesday. Policymakers discussed a half-point cut at last month’s meeting, and while that discussion could come up again, most economists think the central bank is more likely to wait until November to take a bigger step.
In Eastern Europe, both the Hungarian central bank on Tuesday and the Czech bank on Thursday are expected to cut interest rates by a quarter of a percentage point.
In the eurozone and the UK, a first look at the September purchasing managers’ indexes will be published on Monday, giving a picture of the state of private sector activity at the end of the third quarter.
With Germany’s weakness a focal point for investors, the Ifo business confidence gauge will be a highlight on Tuesday, the same day that Bundesbank President Joachim Nagel is due to speak on the economy. New forecasts from the country’s economic institutes are scheduled for Thursday.
French and Spanish inflation readings for September will grab attention on Friday, hinting at the overall outcome for the region expected next week. Economists are predicting that both countries’ readings will fall below 2%.
In addition to Nagel, more than half a dozen eurozone policymakers will speak, including European Central Bank President Christine Lagarde, Chief Economist Philip Lane and the new governor of the Spanish central bank José Luis Escriva.
Several central bank decisions are also planned on the African continent:
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Nigerian officials are expected to pause a tightening cycle on Tuesday that has seen the rate rise from 11.5% to 26.75% in just over two years. They will be encouraged by inflation cooling to a six-month low as they weigh the impact of flooding in the country and a steep rise in gasoline costs on price growth.
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Morocco’s central bank is likely to keep interest rates at 2.75% to allow June’s surprise rate cut to filter through to the domestic market. The kingdom needs low interest rates to encourage investment and curb unemployment. It has huge investment plans to rebuild earthquake-hit areas and infrastructure ahead of the 2030 World Cup.
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In southern Africa, officials in Lesotho could deviate from South Africa’s rate cut and keep borrowing costs at 7.75 percent as inflation remains high. Although Lesotho tends to mirror its neighbor’s policy, its key interest rate is already 25 basis points lower.
Elsewhere, Zambian Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy recover from one of the toughest years this century, presenting his 2025 budget for Africa’s second-largest copper producer.
Latin America
Brazil watchers have a lot to digest. The minutes of the central bank’s September rate meeting and a quarterly inflation report are front and center.
The former could provide a more detailed policy plan after a quarter-point hike on September 18, to 10.75%, while the latter will update a range of economic estimates and scenarios. Expect the BCB to highlight forecasts for inflation, the key interest rate and GDP growth.
The week for Latin America’s largest economy ends with employment figures likely to show Brazil’s labor market remains historically tight, while inflation may have remained stuck near the upper end of the central bank’s target by mid-month.
Argentina is expected to report GDP proxy figures for July, which could lend support to the view that the economy has emerged from the 2024 lows and is beginning a recovery in the second half of the year.
In Mexico, falling domestic demand could lead to a new round of weak retail sales, hot on the heels of June’s negative annual and monthly figures. Moreover, mid-month inflation figures are unlikely to give policymakers a logical reason to cut or keep interest rates steady when Banxico meets a few days later.
Early consensus expects a quarter-percentage point cut to 10.5%, though some analysts expect a half-percentage point cut to keep pace with the Fed.
–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill, and Souhail Karam.
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