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Federal Reserve officials are set to slow the pace of rate hikes again next week amid signs of slowing inflation, while Friday’s jobs report could suggest steady demand for workers improves the chances of a soft landing for the world’s largest economy.
Policymakers were poised to raise their benchmark federal funds rate by a quarter of a percentage point on Wednesday, to 4.5% to 4.75%, reverting to the size of the increase for second meeting in a row.
The move follows a flurry of recent data showing the Fed’s aggressive campaign to slow inflation is working.
“I do expect that we will raise rates a few more times this year, however, in my opinion, the days when we raised rates 75 basis points at a time are certainly over,” said Mr. Philadelphia Fed President Patrick Harker said in his Jan. 20 speech. “A 25 basis point increase would be appropriate going forward.”
The key questions for Fed Chairman Jerome Powell in his post-meeting news conference will be how much higher the central bank intends to raise interest rates and what officials need to consider before pausing.
Fed officials have made it clear that they also want to see evidence that supply and demand imbalances in the labor market are beginning to ameliorate.
Hiring could slow in January, according to economists surveyed by Bloomberg, who predict employers added 185,000 jobs compared with 223,000 in December. They see the unemployment rate rising. 3.6%, still near a five-decade low, and expect average hourly earnings to rise 4.3% from a year earlier, a drop from the previous month, according to their median estimate. .
The Fed will have another key piece of information on inflation on Tuesday when the Labor Department releases the Employment Cost Index, a broad measure of wages and benefits. Employment data for December will also be released on Wednesday, as will a survey of manufacturers in January.
What Bloomberg Economics says:
“The Fed faces a dilemma: On the one hand, inflation data was weaker than expected and activity indicators showed a slowdown in momentum over the past month; on the other hand, financial conditions have softened as traders believe the Fed will move to cut rates soon. The data will justify smaller rate hikes, but the Fed will likely see easier financial conditions – while inflation remains uncomfortably above target – as a reason to act. Eagle.”
—Anna Wong, Eliza Winger and Niraj Shah, economists. For full analysis, click here
Elsewhere, a day after the Fed, the European Central Bank and the Bank of England are likely to raise interest rates by a half point, after eurozone data could show slowing inflation and a slowing economy. economic stagnation. Meanwhile, surveys from China could show improvement, Brazil’s central bank could keep borrowing costs unchanged, and the International Monetary Fund will release its latest global economic forecast.
Click here for what happened last week, and below is our recap of what’s to come in the global economy.
Asia
China is back to work after the Lunar New Year holiday with the strength of the economy in focus.
The official PMIs due on Tuesday are likely to improve sharply from the dismal December numbers, but the manufacturing sector is not expected to expand markedly again. They will be followed by PMIs from across Asia on Wednesday.
Japan’s release of factory output, retail sales and unemployment data could cast doubt on the strength of the economy’s recovery from a summer slump.
India released its latest budget midweek as policymakers there try to keep growth on track while curbing the deficit.
Export data from South Korea will provide insights on global trade on Wednesday, while inflation data the next day will be scrutinized by the Bank of Korea.
Trade figures are also coming from New Zealand, although unemployment figures will be a key concern for the RBNZ as it weighs the possibility of a smaller rate hike.
The Reserve Bank of Australia will monitor house prices and retail sales data before making a rate decision next week.
Europe, Middle East, Africa
Key interest rate decisions will dominate the news in Europe, with the first meetings of the year at central banks in both the eurozone and the UK.
Ahead of the ECB meeting on Thursday, key data will draw attention for clues on the policy path. Economists are divided on whether eurozone GDP on Tuesday will show a fourth-quarter contraction – potentially heralding a recession – or whether the region will avoid a slump or not.
The next day, eurozone inflation in January is projected to slow for a third month, although a handful of forecasters expect an acceleration.
Growth and consumer price data from the region’s three largest economies – Germany, France and Italy – will also be released in the first half of the week, making it a busy few days for investors.
The so-called core fundamental measure of inflation may show only a slight weakening. That metric is drawing more attention from officials justifying further aggression toward policy tightening.
The ECB’s decision itself will almost certainly include a half-point increase in interest rates and more details on a plan to reduce bond holdings shaped by years of quantitative easing.
With the trend alluding to President Christine Lagarde’s future decisions, investors can focus on whatever outlook she revealed for March in her press conference, at a time when the Officials are increasingly conflicted about whether tightening should slow down.
The BOE decision is also due on Thursday and could also raise interest rates by half a point. That would prolong the UK’s fastest monetary tightening in three decades. Although inflation has fallen over the past two months, it is still five times higher than the central bank’s 2% target.
That same day, the Czech central bank is likely to leave interest rates unchanged at their highest levels since 1999 and issue a fresh inflation outlook.
Looking south, Ghana is expected to increase borrowing costs on Monday following a faster-than-expected price increase in the last two months of 2022 and renewed volatility in the cedi, as the country negotiates Negotiate its debt restructuring plan.
On the same day, Kenyan policymakers are ready to slow monetary tightening after inflation fell for two consecutive months. They are expected to raise borrowing costs by a quarter of a percentage point.
Egypt, where local Treasury yields have widened to record levels relative to their emerging market peers, could raise rates again on Thursday with inflation running high. the most in 5 years.
Latin America
Mexico this week became the region’s first major economy to post output from October to December. Most analysts see GDP falling for a third straight quarter and many predict a recession. mild recession will occur in 2023.
December remittance data due midweek is likely to push the full 2022 figure to more than $57 billion, easily surpassing the previous annual record of $51.6 billion set in year 2021.
Chile within three days posted at least seven economic indicators, led by GDP in December, which is said to be consistent with the economy falling into recession.
In Colombia, the results of the central bank’s January 27 meeting – where policymakers extended a record hiking campaign – will be posted on Tuesday. At 12.75%, BanRep may be nearing its end.
In Brazil, look for the broadest measure of inflation that slowed in January while industrial output continued to struggle.
With inflation finding only frosty progress back on target, Brazil’s central banks this week have little choice but to keep the benchmark interest rate at 13.75% for Wednesday’s meeting. Economists surveyed by the bank saw only a 229 basis point slowdown over the next four years, which would mean falling short of the target for the seventh consecutive year by 2025.
–With support from Andrea Dudik, Vince Golle, Benjamin Harvey, Paul Jackson and Robert Jameson.
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