Jackson Hole preview: Will Powell signal a jumbo Fed rate cut?

The climax will come on Friday, when Fed Chairman Jerome Powell talks about the economic outlook in a keynote speech at 10am New York time.

With the US central bank approaching a pivotal point, it’s hard to overstate how much attention financial markets will be paying. For starters, they’re looking for confirmation that the Fed will cut rates in September. But more drama surrounds what happens after that and the pace of further tapering over the next few months as the Fed grapples with twin risks to both inflation and employment.

Bank of England Governor Andrew Bailey will appear on Friday, and Philip Lane, chief economist at the European Central Bank, will speak a day later. The conference is usually good for a flood of additional commentary from a wide range of policymakers and economists.

Program details for the Friday-Saturday symposium will be released Thursday evening, local time.

Just before the event begins, and also likely to draw attention, minutes from the Fed’s July 30-31 policy meeting will be released on Wednesday.

“It is very likely that Powell will use his Jackson Hole address to declare that soon will be the ‘right’ time to cut rates.” So the focus will be on a narrower question: Will it signal an opening to a 50 basis point move or not? We don’t think Powell will close the door on a 50bp cut, but he won’t show any particular inclination towards it either. That’s because policymakers likely haven’t reached a consensus on the urgency of rate cuts,” says Bloomberg Economics.

New US housing demand figures as well as weekly jobless claims are the highlight of a weak week for US economic data. On Thursday, the National Association of Realtors will release data on previously owned home sales, followed the next day by the government’s snapshot of new home purchases. Both are seen making modest gains, suggesting the residential housing market is stabilizing after a recent decline in mortgage rates.

On Wednesday, the Bureau of Labor Statistics is scheduled to release the preliminary estimate of the benchmark revision for payrolls in the year through March. Final figures are announced early next year.

Further north, Canadian inflation data for July will be important to keep the central bank on track to deliver a third consecutive interest rate cut in September. The Bank of Canada expects uneven progress toward the 2% target and is increasingly focused on downside risks, so it is primarily looking to see sustained evidence of easing. Retail sales data for June and a flash estimate for July will also shed light on the health of the country’s consumer.

Elsewhere, flash PMIs for Japan, the UK and the eurozone will be in focus, while China is expected to hold key lending rates steady. Sweden’s Riksbank is likely to cut interest rates, while central banks in Turkey, Thailand, Indonesia and South Korea are expected to hold.

Asia

Bank of Japan Governor Kazuo Ueda is drawing attention on Friday when he appears in parliament to explain the thinking behind the July 31 rate hike, after some traders cited the move as a catalyst for market swings earlier this month. Ueda is also likely to discuss the policy outlook.

Elsewhere among central banks, the People’s Bank of China is expected to keep prime rates for 1-year and 5-year loans steady after surprise cuts last month. Bloomberg Economics expects the PBOC to cut rates by 10 basis points in the fourth quarter.

On Tuesday, the Reserve Bank of Australia released minutes from this month’s meeting as economists look for signs of any easing of the RBA’s dovish rhetoric and the Bank of Korea is expected to keep its key rate at 3, 5% to avoid population growth. debt. Thailand and Indonesia are also expected to keep borrowing costs flat.

The region receives PMI statistics for Australia, Japan and India on Thursday, and Thailand’s second-quarter economic growth is seen accelerating year-on-year and slowing from the previous period.

Japan’s consumer inflation likely rose for a third straight month in July, with trade figures due later in the week from Japan, Malaysia and New Zealand. Malaysia also publishes inflation data.

Europe, Middle East, Africa

With the European Central Bank set to resume interest rate cuts in September, all eyes will be on the negotiated wages data and the July decision by policymakers – both due on Thursday.

Flash PMIs for Germany, France and the eurozone are also scheduled for the day, with economists forecasting readings as weak as last month.

The situation in the UK – which has just seen extraordinary second quarter GDP numbers – is much rosier, and the PMI numbers there are probably upbeat.

On Wednesday, data from South Africa is due to show that inflation fell to an 11-month low of 4.8 percent in July, from 5.1 percent a month earlier. This could open up room for the central bank to cut rates at its September meeting if this disinflation process continues. Governor Lesetja Kganyago has repeatedly said he would adjust rates once inflation sustainably reaches the 4.5 percent midpoint of his target range.

Five central bank rate decisions are scheduled in the region:

• The Riksbank is expected to announce another cut on Tuesday, with Swedish officials likely to resist domestic calls to take the benchmark rate half a percentage point lower and go with a more conventional cut of 25 basis points.
• On the same day, the Turkish central bank is likely to leave its policy rate at 50% for the fifth consecutive month amid visible signs of a cooling economy, although annual inflation is still above 60%.
• On Wednesday, Iceland is set to keep pending borrowing costs at 9.25 percent, the highest rate in Western Europe. Market participants expect monetary easing to begin in the final quarter of the year, according to a central bank survey released on Friday.
• Also on the day, Rwanda is poised to cut its key interest for the second straight meeting as inflation remains subdued.
• On Thursday, Botswana is likely to leave its key rate unchanged to support an economy that shrank for the first time since the peak of the pandemic in the three months to March and as inflation remains within target.

latin america

Chile’s economy likely contracted in the three months to June due to weaker investment and exports, but the consensus call is for a rebound in the second half.

Economists polled by the central bank forecast 2024 GDP growth of 2.3 percent, up from 0.2 percent last year.

Paraguay’s central bank kept its key rate unchanged at 6 percent in July for a fourth straight month and could do so again this week after annual inflation rose to 4.4 percent in July.

Argentina released unexpectedly strong proxy GDP data for May last month, largely due to a bumper crop that will not support the June results reported this week.

In Mexico, nearly two years of double-digit interest rates are dampening domestic demand and can be expected to weigh on June retail sales, indirect GDP and full Q2 manufacturing results released this week. Economists in Citi’s biweekly poll see full GDP growth in 2024 slowing for a third year to 1.7%.

Mid-month inflation data will give Mexico watchers a first chance to gauge Banxico’s quarter-point rate cut on Aug. 8 to 10.75 percent.

The minutes of the meeting may shed more light on Banxico’s view that a rise in food prices will prove temporary and that the slowdown in growth should help control consumer price increases.

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