(Bloomberg) — The Federal Reserve’s preferred gauge of prices and the picture of consumer demand are expected to underscore the central bank’s aggressive 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 is likely to rise 2.3% from a year earlier, the smallest annual gain since early 2021 and just above the central bank’s 2% target.
The slower pace of inflation from a year ago reflects lower energy prices and weaker food prices, along with moderate core costs. Economists expect government data on Friday to show the personal consumption expenditures price index excluding food and fuel rose 0.2% for a third straight month.
The gradual easing of inflationary pressures since earlier this year gave Fed policymakers confidence to cut interest rates by a half-percentage point on Sept. 18. The cut was the first in more than four years and marked a shift in the central bank’s policy toward avoiding a deterioration in the labor market.
Investors will be parsing comments from a slew of Fed officials next week. Among those scheduled to appear at various events are Governors Michelle Bowman, Adriana Kugler and Lisa Cook, along with regional heads Raphael Boucek and Austan Goolsbee.
The August inflation figures will be accompanied by data on personal spending and income, and economists expect another strong advance in household spending. Sustained growth in consumer spending helps increase the chances that the economy will continue to expand.
Other economic data includes August new home sales, second-quarter GDP 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 rate cut increases the chances of a soft landing, but it by no means guarantees it. Our baseline remains for the unemployment rate to reach 4.5% by the end of 2024, before rising to 5% next year.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Au, and Chris J. Collins, economists. For the full analysis, click here
In Canada, July GDP data and a preliminary estimate for August are expected to show weak third-quarter growth, which could be below the Bank of Canada’s forecast of a 2.8% annual expansion. Meanwhile, central bank Governor Tiff Macklem is set to speak at a banking conference in Toronto.
Elsewhere, the OECD is due to unveil new economic forecasts on Wednesday, central banks in Switzerland and Sweden could cut interest rates, and Australia’s is expected to hold steady.
Click here to see what happened last week, and here’s our summary of what’s coming in the global economy.
Asia
The Reserve Bank of Australia is expected to keep its cash rate target unchanged at 4.35% when its board meets on Tuesday, with attention likely to focus on whether Governor Michelle Bullock will maintain her hawkish tone after strong labor figures prompted traders to scale back bets on a December rate cut.
Bloomberg Economics still sees a path to a potential RBA policy easing in the fourth quarter. Authorities will have to wait until Wednesday to see if Australian inflation slowed for a third month in August.
Australia’s Treasurer Jim Chalmers said on Sunday he expected upcoming data to show encouraging progress in combating inflation but acknowledged the central bank may not be ready to cut interest rates this week.
Other countries issuing inflation updates include Malaysia and Singapore, where price growth is expected to slow in August.
Japan gets fresh inflation data with consumer prices due in Tokyo on Friday, which are expected to rise at a pace above the Bank of Japan’s 2% target in September.
Purchasing managers’ indices for September are due out from Australia and India on Monday and from Japan the following day.
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 momentum in August after rising at the fastest pace in five months in July.
Trade statistics are due from South Korea, Thailand and Hong Kong.
Europe, Middle East and Africa
Four central bank decisions are due in Europe, where investors may wonder how willing policymakers are to follow the Federal Reserve in cutting interest rates by half a percentage point.
That’s certainly the case with the Swiss National Bank on Thursday. While most economists expect a quarter-point move, observers believe the U.S. cut has increased the chances of a similar-sized move as officials grapple with the continued strength of the franc. It’s the last meeting for President Thomas Jordan, whose term expires at the end of the month.
The Swedish central bank is expected to cut borrowing costs by a quarter of a percentage point for the third time this year the previous day, bringing the interest rate to 3.25%, and set a path for further cuts.
Current guidance calls for another half-percentage-point cut in 2024 — including Wednesday. Policymakers talked about a half-percentage-point cut at last month’s meeting, and while that discussion may come up again, most economists think the central bank is likely to wait until November before taking a bigger step.
Meanwhile, in Eastern Europe, the Hungarian central bank is expected to announce interest rate cuts of a quarter of a percentage point on Tuesday and its Czech counterpart on Thursday.
In the eurozone and the UK, a first look at September purchasing managers’ indices is due on Monday, indicating 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 sentiment index will be a highlight on Tuesday, the same day Bundesbank President Joachim Nagel is due to speak about the economy. The country’s economic institutes are due to release new forecasts on Thursday.
Investors and new French Finance Minister Antoine Armand will be watching French data closely. Purchasing managers’ indices for the euro zone’s second-largest economy received a boost in August, but that effect is expected to fade this month. Consumer confidence figures are also due.
French and Spanish inflation readings for September will draw attention on Friday, giving an indication of the region’s overall result due out the following week. Economists expect both countries’ readings to fall below 2%.
In addition to Nagel, more than a half-dozen eurozone policymakers are scheduled to speak, including European Central Bank President Christine Lagarde, chief economist Philip Lane, and Spain’s new central bank chief Jose Luis Escrivá.
Central banks across the African continent are also set to make different decisions:
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Nigerian officials are likely to pause on Tuesday a monetary tightening cycle that has lifted interest rates to 26.75% from 11.5% in just two years. They will be encouraged by a slowdown in inflation 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 is likely to keep interest rates at 2.75% to allow enough time for a surprise rate cut in June to filter through to the domestic market. The kingdom needs low interest rates to facilitate investment and contain unemployment. It has huge investment plans to rebuild earthquake-damaged areas and infrastructure ahead of the 2030 World Cup.
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In South Africa, Lesotho officials may shy away from South Africa’s rate cuts and leave borrowing costs at 7.75%, as inflation continues to rise. While Lesotho tends to mirror its neighbor’s policy, its key interest rate is already about 25 basis points lower.
Meanwhile, Zambian Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy recover from one of the 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 interest rate meeting and the quarterly inflation report in focus.
The European Central Bank may present a more detailed roadmap for monetary policy after a quarter-point hike on September 18, to 10.75%, while the ECB updates all forms of economic estimates and scenarios. The ECB is expected to raise its forecasts for inflation, the key interest rate and GDP growth.
Closing out the week for Latin America’s largest economy, jobs data is likely to show that Brazil’s labor market remains at historically tight levels while inflation may have stalled mid-month near the top of the central bank’s target range.
Argentina is due to publish alternative GDP readings for July, which could build support for the view that the economy has passed its 2024 lows and is starting to recover in the second half.
In Mexico, weak domestic demand could lead to another set of weak retail sales — following negative annual and monthly readings in June — while mid-month inflation data is unlikely to give policymakers a strong reason to cut or hold interest rates when the Bank of Mexico meets in a few days.
The early consensus expects a quarter-point cut to 10.5%, although some analysts see a half-point cut possible to keep pace with the Fed.
–With assistance from Brian Fowler, Robert Jameson, Niklas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill, and Soheil Karam.
(Updates with Australian Treasurer in Asia Division, and France in Europe, Middle East and Africa Division)
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