Jerome Powell’s comments next week will be closely analyzed by investors for clues about how long the Federal Reserve is willing to wait before cutting interest rates.
The last time the US Federal Reserve Chairman spokenHe suggested that policymakers were likely to keep borrowing costs high for longer than expected, citing the lack of further progress in reducing inflation and the continued strength of the labor market.
The current price datawhat was shown stubborn underlying inflationcoupled with expectations of a robust jobs report on Friday, are unlikely to cause the Fed chief to change his mind.
Powell will address reporters after the Fed’s interest rate decision on Wednesday, when the central bank is widely expected to keep borrowing costs at their highest level in more than two decades. Expectations for rate cuts have been pushed further into 2024, with investors now betting on a maximum of two cuts by the end of the year.
The culmination of the week is the monthly jobs report, which offers a new look at the state of the US labor market. Economists expect nonfarm payrolls growth to moderate to a still-strong pace in April amid stable, low unemployment.
What Bloomberg Economics says:
“We assume that Powell will implement a hawkish policy change. At the very least, he will likely point out that the median FOMC participant now expects “fewer” cuts this year. In a more hawkish direction, it could indicate that there will be no cuts – or even suggest that a rate hike could be on the table, albeit not the current baseline.”
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists.
We also receive updates on a quarterly, closely watched measure of employment costs, as well as monthly job vacancy and production numbers.
Looking north, Canada’s gross domestic product data for February could see a slight economic boost, giving the Bank of Canada options as it weighs a transition to looser policy.
Elsewhere, Eurozone data could show Inflation stopped slowing and the economy began to grow again, while Chinese surveys will point to the strength of the expansion there. Central banks from Norway to Colombia will set interest rates, while the Paris-based OECD will release new global forecasts on Thursday.
Asia
China is shedding light on the prospects for expanding economic expansion in the first quarter with the release of official Purchasing Managers Index data on Tuesday. The report shows whether manufacturing activity increased for a second month in April.
There could be a seasonal slowdown due to fewer working days, but overall momentum is likely to point to a sustained recovery, according to Bloomberg Economics. On the same day, the Caixin indicator appears, which has been hovering above the threshold of 50 that separates expansion from contraction for five months.
Global trade will be in the spotlight as Australia, South Korea, Thailand, Sri Lanka and Vietnam release trade figures later in the week.
Japan will receive a barrage of data on Tuesday that is expected to show industrial production rose again in March. Retail sales and the unemployment rate are also published.
And South Korea’s consumer inflation data on Thursday is expected to show price growth slowing slightly but remaining above the Bank of Korea’s target, giving the central bank additional incentive to delay any policy change.
Europe, Middle East, Africa
In the euro zone, data could show that the slowdown in inflation stalled in April for the first time this year. Consumer prices are expected to have risen 2.4% year-on-year, in line with March’s result given rising energy costs.
The underlying measure, which strips out such volatile items, could reassure officials that the trend is still trending downward, even though national figures are likely to show some divergence. Germany and Spain, which release data on Monday, are expected to have experienced faster inflation.
The Eurozone report will be released on Tuesday along with the latest GDP figures. Economists say the region likely returned to growth of a minimal 0.1% in the first quarter after the mild recession at the end of 2023.
As with inflation, Tuesday’s numbers could mask uneven results across the region. To get a taste of this, investors will likely pay close attention to Ireland’s growth data on Monday, which has historically been characterized by volatility.
Overall, the reports may be consistent with European Central Bank President Christine Lagarde’s observation this month that the economy was weak and facing “bumps” in the inflation path.
Switzerland will release consumer price data on Thursday that could show inflation remains well below the central bank’s target of 2%.
And the next day, investors in Turkey will be watching for progress in slowing consumer price growth.
Most of the market expects Turkey’s inflation rate to continue rising from 68.5% in March to around 75% in the coming months, despite nearly a year of aggressive interest rate hikes. Unless price increases slow, bond investors are unlikely to re-enter the lira debt market, a key goal of the Turkish government.
There are three currency decisions taking place across the region:
- On Tuesday, Malawian officials could be persuaded to raise the key interest rate again to curb inflation, which is likely to remain elevated due to crop damage caused by adverse weather conditions.
- The Czech central bank will announce its latest decision on Thursday. Policymakers are expected to cut borrowing costs by 50 basis points.
- The next day, Norges Bank could leave the deposit rate unchanged after the Norwegian economy performed better than expected, even as inflation slowed faster than expected. Investors will be watching for clues as to whether policymakers will become more cautious about cutting borrowing costs in the fall.
Latin America
Mexico’s flash first-quarter manufacturing data is likely to show the economy suffered a slight contraction in the three months to December. Analyst consensus calls for growth to slow for a third year in 2023, from 3.2% in 2023 to about 2.4%.
Brazil will release a series of reports including the most comprehensive measure of inflation, the central bank expectations survey, the current account, industrial production and the national unemployment rate.
Since last June, the unemployment rate in Latin America’s largest economy has remained below 8%, which is seen by many Brazilian observers as the rate of unemployment in the economy not increasing.
Chile releases a range of indicators for March, including retail sales, unemployment, industrial production, manufacturing, copper production and GDP proxy numbers. Stronger-than-expected growth and a rise in inflation prompted the central bank to slow the pace of easing earlier this month.
In Peru, April’s inflation report for the megacity capital Lima may show that prices are finally back within the 1% to 3% tolerance range, while still above the 2% target.
Colombia’s central bank is widely believed to be extending its easing cycle with a second straight cut of half a percentage point, which would bring the key interest rate down to 11.75% amid a steady process of inflation. BanRep will also release its quarterly inflation report, which updates growth and inflation forecasts and presents a revised monetary policy outlook.