The Fed’s preferred price gauge is set to strengthen rate cuts

(Bloomberg) — Next week’s U.S. inflation numbers will reinforce that long-awaited interest rate cuts are coming soon, while a reading on consumer spending indicated the central bank managed to keep the expansion intact.

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Economists see the price index for personal consumption expenditures excluding food and energy — the Fed’s preferred measure of core inflation — rising 0.2 percent in July for a second month. That would reduce the three-month annualized rate of so-called core inflation to 2.1 percent, just above the central bank’s 2 percent target.

Economists polled by Bloomberg also expected consumer spending, unadjusted for price changes, to rise 0.5 percent — the strongest advance in four months — in Friday’s report.

Speaking at the Jackson Hole Symposium, Fed Chairman Jerome Powell acknowledged recent progress on inflation, saying he had gained confidence that it was on a path back to 2% and that “the time has come for policy to adjust “.

Friday’s comment marked a key turning point in the Fed’s two-year battle against price pressures and underscored how the focus has shifted to labor market risks — the other side of the central bank’s dual mandate. The increase in employment has helped to maintain consumer spending – a key to ensuring the economy expands.

On Thursday, the government will issue the first revision of the second quarter gross domestic product. Economists’ median projection calls for an annual growth rate of 2.8 percent, unchanged from the previous reading.

Other US data next week includes July durable goods orders on Monday and separate consumer confidence indexes on Tuesday and Friday.

What Bloomberg Economics Says:

“Powell’s very convenient Jackson Hole address was music to the players’ ears. He promised the Fed would do “everything it can” to support a strong labor market, providing a floor for the economy. We think a little reality check is in order.”

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Further north, second-quarter Canadian GDP data will be the last major economic release before the central bank cuts rates for the third consecutive meeting on September 4.

Preliminary data suggested annualized quarterly growth of 2.2% – higher than the central bank’s forecast of 1.5% – supported its efforts to project a soft landing by continuing to reduce borrowing costs.

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Investors will also be watching for the latest developments to resolve a Canadian rail dispute that has snarled North American supply chains.

Elsewhere, the euro zone will report inflation for August less than two weeks before the European Central Bank decides on future monetary policy, while China’s central bank will set its one-year policy lending rate. Tariff decisions include Hungary and Israel.

Click here for what happened in the past week, and below is our list of what’s happening in the global economy.

Asia

The week begins with renewed attention on China’s new monetary framework as the People’s Bank of China sets the rate for its one-year policy loans. After a surprise cut in July, the authorities are expected to keep the rate constant at 2.3%.

Monday’s decision comes after the PBOC signaled this month that it was de-emphasizing the role of the medium-term lending facility as a policy tool, while raising the seven-day reverse repo rate to greater importance.

A day later, China gets industrial profit figures that could fuel calls for more policy measures to boost the economy, and Beijing sees official PMI figures on Saturday.

Elsewhere, pricing will be a theme.

Australia’s subdued average inflation gauge for July will give the central bank fresh evidence to weigh as it considers whether or not to maintain its rhetoric.

Japan also gets an update on consumer inflation for the capital, a leading indicator of national trends. Data on Friday could show India’s annual economic growth slowed slightly in the second quarter, with trade figures due later in the week from Thailand, Sri Lanka and Hong Kong. Kazakhstan’s central bank meets on Thursday to decide whether to cut its key rate for the third consecutive meeting.

Europe, Middle East, Africa

Inflation data will also be in the spotlight for Europe, with August figures due from the region’s big economies – Germany, France, Italy and Spain – along with a reading for the 20-nation eurozone as a whole.

A slowdown is expected for the bloc from 2.6% in July, paving the way for the ECB to cut interest rates for the second time this cycle when it meets in September.

Such expectations were reinforced by the continent’s difficult economic situation. While August’s PMI received an unexpected boost from the Paris Olympics, the underlying weakness is likely to persist beyond this temporary boost. The start of the week will see updates on manufacturing and sentiment in Germany – the region’s current weak spot.

Speakers likely to comment on monetary policy and the latest developments in the economy include ECB Governing Council members Joachim Nagel and Klaas Knot, as well as Executive Board member Isabel Schnabel.

In Eastern Europe, Hungary is expected to keep interest rates on hold at 6.75%. It’s a similar story in the Middle East, where Israel’s central bank is seen keeping benchmark borrowing costs at 4.5 percent.

In Africa, there will be August inflation figures from Kenya and Uganda, along with second quarter GDP figures from Nigeria.

latin america

Brazil’s central bank publishes its weekly survey of economists on Monday. The bank’s president, Roberto Campos Neto, said this month that inflation expectations are not anchored and that officials are ready to tighten monetary policy if necessary.

Brazil’s mid-month inflation data on Tuesday could point to a slight easing from July’s 4.45 percent, still well above the 3 percent target. Analysts are raising their interest rate forecasts, while traders are betting on a price hike as soon as next month.

The fiscal slippage has put Brazil’s budget data in the spotlight – July figures are scheduled to be released next week. Economists polled by the central bank do not see a nominal or primary annual budget surplus through the 2027 forecast horizon.

The main event in Mexico will be the central bank’s quarterly inflation report. New forecasts are unlikely so soon after the revisions made in the bank’s August 8 post-decision statement, but policymakers may revisit GDP estimates.

Chile’s June retail sales figures are likely to show a seventh straight year-on-year positive print after nearly two years of declines.

–With assistance from Robert Jameson, Laura Dhillon Kane, Zoe Schneeweiss, Paul Richardson and Brian Fowler.

(Updates with Canadian rail dispute in 10th paragraph)

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