Fed Dot Plot Is Set to Offer Glimpse of Rate-Cut Resolve

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(Bloomberg) — Investors may benefit more from the Federal Reserve's decision to ease monetary policy when U.S. policymakers update their interest rate forecasts on Wednesday for the first time in three months.

The central bank – led by Chairman Jerome Powell – is widely expected to hold borrowing costs steady for the seventh straight meeting, but officials' expectations for interest rates are less certain.

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A 41% majority of economists expect the Fed to signal two cuts in its closely watched “dot chart,” while a similar number expect forecasts to show only one cut or no cuts at all, according to the median estimate in a Bloomberg poll. .

After raising the benchmark federal funds rate by more than five percentage points starting in March 2022, the Federal Open Market Committee has kept borrowing costs at their highest level in two decades since July.

A number of Fed leaders have indicated in recent weeks that they see no rush to cut interest rates, with inflation persisting and growth expectations remaining strong.

What Bloomberg Economics says:

“The June FOMC meeting will be one of the most important this year, as Powell may offer the clearest hint yet on the timeline for rate cuts. The new dot plot is likely to indicate two 25 basis point cuts this year, compared to three In the March issue.

With surprising growth indicators continuing to trend downward since the April 30-May 1 meeting – even with inflation data meeting expectations – we expect Powell to sound relatively pessimistic in his press conference.

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—Anna Wong, chief U.S. economist. For the full analysis, click here

Inflation, by the Fed's preferred measure, was 2.7% in the year ending in April, compared to the central bank's target of 2%. Data released on Friday showed a rise in payrolls last month as well as an acceleration in wages, prompting traders to back down their expectations for interest rate cuts this year.

“The Fed will choose to keep interest rates steady for longer,” said Thomas Simons, chief US economist at Jefferies. “They will want to see a renewed run of more positive data in line with the inflation trend closer to 2% before they feel comfortable cutting interest rates.”

• For more, read next week's full US report from Bloomberg Economics

In Canada, after becoming the first G7 central banker to launch an easing cycle, Bank of Canada Governor Tiff Macklem will speak at a conference in Montreal.

Elsewhere, a Bank of Japan decision that may reduce bond purchases, inflation data from China to Sweden, and crucial UK wages figures will be among the highlights this week.

Click here to see what happened last week. Below is a summary of what will happen in the global economy.

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Asia

The Bank of Japan steals the spotlight on Friday when its board concludes its two-day meeting with a policy decision.

While the bank is expected to keep its short-term interest rate steady, people familiar with the matter said officials may discuss whether to reduce bond purchases.

This is a move that could support the yen if long-term interest rates in Japan rise, narrowing the yield differential with US Treasuries.

The Bank of Japan meets after the government publishes revised first-quarter growth data on Monday that is likely to confirm the economy contracted for the second time in three quarters.

Elsewhere, the State Bank of Pakistan is expected to cut its benchmark interest rate by a full percentage point on Monday after consumer inflation slowed significantly in May. The central banks of Thailand and Taiwan also meet this week.

In the data, China's consumer price inflation is expected to accelerate slightly to 0.4% year-on-year in May, while factory door deflation may slow to 1.5%, the smallest price decline since February 2023.

India also gets price statistics along with industrial production, while Malaysia publishes April manufacturing sales value and industrial production.

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Trade figures are due from the Philippines and India, and Australia will release NAB data on business conditions and confidence figures on Tuesday, followed by a batch of labor data on Thursday.

• For more, read Bloomberg Economics' full report on next week for Asia

Europe, Middle East, Africa

The UK delivers some data highlights next week. On Tuesday, labor market figures may show a slight pick-up in wage growth in the three months to April, with a 6.1% annual increase expected by economists. Such an outcome is likely to increase the Bank of England's case for avoiding a rate cut this month.

In Wednesday's numbers, GDP likely failed to rise in April for the first time this year, with both manufacturing and services expected to suffer declines in the month that signal a poor start to the second quarter.

As the UK election campaign continues in full swing, Bank of England officials will observe a self-imposed period of calm in the coming days.

In the euro zone, industrial production data on Monday is expected to show the smallest increase in three months, suggesting that the region also started the second quarter on a weak footing.

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In the wake of last week's interest rate cuts, European Central Bank officials are scheduled to speak this week, including the governors of Germany and France, chief economist Philip Lane, Vice President Luis de Guindos, and ECB President Christine Lagarde.

Investors are also awaiting the European Parliament elections, the results of which are scheduled to be published late Sunday.

What does Bloomberg Economics say…

“In the next Parliament, the European Union will have to take action to address the productivity gap that has opened up with the US economy – and failure to do so would jeopardize its position as a major global player. It must strike a balance between fiscal sustainability and investment for a brighter future.” Green and prosperous, it will have to decide its stance on trade and defense policy at a moment of extreme geopolitical uncertainty.

—Jamie Rush and Simona Dilli Chiay. Read the full research here

Looking south, Saudi GDP data on Sunday will give an updated view after an initial estimate that the kingdom's economy shrank 1.8% in the first three months of the year, the third consecutive quarterly contraction.

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The non-oil economy – a priority for the government – grew by 2.8% year-on-year during the first quarter, also retreating from higher levels during previous quarters.

Kenyan Treasury Minister Njuguna Ndongo will on Thursday present the East African country's budget for the year to June 2025. He is expected to detail plans for the country at high risk of debt distress to achieve its lowest fiscal deficit in 15 years by containing spending. Reduced borrowing and strict tax measures.

• For more, read next week's full Bloomberg Economics EMEA report

Meanwhile, several May consumer price reports will be published across the region:

• Norway's inflation rate is expected to slow on Monday, but is still stuck above 3%.
• Investors will closely monitor any decline in Ghana's data scheduled for release on Wednesday. The price measure has been flat, averaging 24% so far this year.
• Meanwhile, economists on Friday expected Israel's inflation rate to accelerate to 3.2%, from 2.8% the previous month.
• On the same day, Russian data may show consumer price growth topped 8%, double the central bank's target, as price pressures continue to build in an economy overheated by President Vladimir Putin's war in Ukraine.
• Sweden will publish the figures after that as well. The annual consumer price measure tracked by the Riksbank is expected to weaken by nearly 2%.

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latin america

In Brazil, a central bank poll of analysts published on Monday may show a further erosion in inflation expectations for 2024-2026 in addition to the May reading.

Notably, analysts last week raised their 2024 estimates for the key interest rate by a quarter point to 10.25% – up from 9% in April – increasing speculation that the bank will hold at 10.5% this month.

The May consumer price report released on Tuesday is likely to show the first acceleration in eight months from 3.69% in April. On Thursday, the Brazilian statistics agency publishes retail sales data for April.

In Colombia, early consensus expects inflation to have risen very slightly in May, its first rise in 14 months. The table also includes April reports on industrial production, manufacturing and retail sales.

Argentina's monthly inflation will likely slow for a fifth month in May from 8.8% in April. Analysts surveyed by the central bank expect a reading of 5.2%, implying an annual rate of 279.6%, down from April's reading of 289.4%.

In Peru, one of the world's longest-serving central bankers has finally managed to get inflation back on target: Julio Velarde, who has headed the bank for nearly 18 years, goes into an interest rate meeting on Thursday as consumer prices return to the 2% target. Expect interest rates to be cut by a quarter point to 5.5%.

• For more, read the full Latin America Week from Bloomberg Economics

-With assistance from Tony Halpin, Robert Jameson, Laura Dillon Kane, Brian Fowler, Piotr Skolimowski, Monique Vanek, David Herbling, and Abeer Abu Omar.

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