(Bloomberg) — The Federal Reserve’s preferred price metric and a snapshot of consumer demand would corroborate both the central bank’s aggressive interest rate cuts and Chairman Jerome Powell’s view that the economy remains strong.
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Economists expect the personal consumption expenditures price index to rise 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 slightly higher than the central bank’s 2% target.
The slowdown in inflation from a year ago reflects falling energy and food prices, along with moderating basic costs. The PCE price gauge excluding food and fuel probably rose 0.2% for a third month, according to economists showing government data on Friday.
The easing of inflationary pressures earlier this year gave Federal Reserve policymakers enough confidence to cut rates by half a percentage point on Sept. 18. The cut was the first in more than four years and represented a shift in central bank policy to prevent a deterioration in the labor market.
Investors will be poring over remarks from a host of Federal Reserve officials over the next 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 will be accompanied by data on personal spending and income, and economists are projecting another solid gain in household spending. Sustained growth in consumer spending helps increase the likelihood that the economy will continue to expand.
Other economic data include August new home sales, second-quarter gross domestic product along with annual GDP revisions through 2019, weekly jobless claims and August durable goods orders.
What Bloomberg Economics says:
“In our view, the Fed’s massive cut increases the likelihood of a soft landing, but by no means guarantees it. Our baseline remains 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 the full analysis, click here
In Canada, GDP data for July and a preliminary estimate for August are expected to show weak growth in the third quarter, likely below the Bank of Canada’s forecast of a 2.8% annualized expansion. Meanwhile, central bank governor Tiff Macklem is set to speak at a banking conference in Toronto.
Elsewhere, the OECD is due to release new economic forecasts on Wednesday, central banks in Switzerland and Sweden are expected to cut rates, and the Australian counterpart is expected to keep rates unchanged.
Click here to see what happened over the past week and then our summary of what’s next for the global economy.
Asia
The Reserve Bank of Australia is expected to keep its target cash rate unchanged at 4.35% when the board meets on Tuesday, with attention likely to fall on whether Governor Michele Bullock maintains her hawkish tone after strong jobs figures prompted traders to reduce bets on a rate cut in December.
Bloomberg Economics still sees a path to possible RBA easing in the fourth quarter. Policymakers will have to wait until Wednesday to see whether Australian inflation cooled for a third month in August.
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 due to publish inflation updates include Malaysia and Singapore, where price growth is forecast to have slowed in August.
Japan will get 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 will be released in Australia and India on Monday and in Japan a day later.
In China, the one-year medium-term lending facility 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 rising at the fastest pace in five months in July.
Trade statistics for South Korea, Thailand and Hong Kong will be released.
Europe, Middle East, Africa
Four central bank decisions are scheduled in Europe, where investors may question policymakers’ appetite to follow the Fed’s lead with a half-point rate cut.
That was certainly the case at the Swiss National Bank on Thursday. While most economists expect a quarter-point move, observers see the US tapering as having increased the chances of a similarly sized step as officials grapple with the franc’s persistent strength. This is the last meeting for President Thomas Jordan, whose term ends at the end of the month.
The day before, Sweden’s Riksbank is 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 for further cuts.
Current guidance is for two or three more steps in 2024, including Wednesday’s. Policymakers talked about a half-point cut at last month’s meeting, and while that discussion could come up again, most economists think it’s more likely the central bank will wait until November to make a bigger move.
Meanwhile, in Eastern Europe, both the Hungarian central bank on Tuesday and its Czech counterpart on Thursday are expected to implement quarter-point cuts.
In the euro zone and the UK, a first look at September purchasing managers’ indices will be published on Monday, indicating the state of private sector activity at the end of the third quarter.
Investors will be focused on the Ifo business confidence index, which will be published on Tuesday, the same day Bundesbank President Joachim Nagel is due to speak on the economy. New forecasts from the country’s economic institutes will be published on Thursday.
French data will be closely watched by both investors and the country’s new finance minister, Antoine Armand. PMIs for the eurozone’s second-largest economy received an Olympic boost in August, but that effect is expected to have faded this month. Consumer confidence data will also be released.
On Friday, the focus will be on inflation figures for France and Spain for September, which will provide clues to the overall regional outcome next week. Economists predict that figures for both countries will fall below 2%.
Besides Nagel, more than half a dozen eurozone 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 Escrivá.
A number of central bank decisions are also expected across the African continent:
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Nigerian policymakers on Tuesday are likely to pause a tightening cycle 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 sharp rise in gasoline costs on price growth.
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Morocco’s central bank will likely keep its rate at 2.75% to give time for the surprise cut in June to filter through to the domestic market. The kingdom needs low rates to facilitate investment and contain unemployment. It has massive investment plans for rebuilding earthquake-hit areas and infrastructure ahead of the FIFA World Cup in 2030.
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In southern Africa, Lesotho could distance itself from South Africa’s rate cuts and leave borrowing costs at 7.75%, as inflation remains high. While Lesotho tends to mimic its neighbour’s policy, its benchmark rate is already 25 basis points lower.
Separately, Zambian Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy recover from one of the toughest years it has faced this century when he unveils his 2025 budget for Africa’s second-largest copper producer.
Latin America
Brazil watchers will have plenty to digest, with minutes from the central bank’s September rate meeting and a quarterly inflation report taking centre stage.
The former may provide a more detailed monetary policy roadmap after a quarter-point hike on September 18 to 10.75%, while the latter updates all kinds of economic estimates and scenarios. The BCB is expected to update forecasts for inflation, the key 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 scheduled to release rough GDP readings for July, which may support the view that the economy has passed its 2024 low point and is beginning a recovery in the second half.
In Mexico, slowing domestic demand may lead to another set of weak retail sales figures (following negative monthly and annual readings in June), while mid-month inflation data is unlikely to provide policymakers with clear cause to cut or hold rates when Banxico meets a few days later.
The initial consensus expects a quarter-point cut to 10.5%, although some analysts see a possible half-point reduction to keep pace with the Fed.
–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill and Souhail Karam.
(Updates with Australian Treasurer in Asia section, France in EMEA section)
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