The Fed is on track to get approval for its Jumbo rate cut

(Bloomberg) — The Federal Reserve’s preferred price gauge and a snapshot of consumer demand are seen corroborating both the central bank’s aggressive rate cut and Chairman Jerome Powell’s view that the economy remains strong.

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Economists see the price index for personal consumption expenditures rising just 0.1 percent in August for the second time in three months. The inflation gauge likely rose 2.3 percent from a year earlier, the smallest annual gain since early 2021 and a shade higher than the central bank’s 2 percent target.

The decline in inflation from a year ago reflects lower energy and weaker food prices, along with moderation in core costs. The PCE price gauge, excluding food and fuel, likely rose 0.2 percent for a third month, economists expect government data to show on Friday.

The easing of inflationary pressures earlier this year gave Fed policymakers enough confidence to cut rates on September 18 by half a percentage point. The cut was the first in more than four years and was a pivot in the central bank’s policy to avoid a worsening labor market.

Investors will weigh in on remarks from a slew of Fed officials next week. Governors Michelle Bowman, Adriana Kugler and Lisa Cook, along with regional presidents Raphael Bostic and Austan Goolsbee, are among those who will appear at various events.

August’s inflation figures will be accompanied by data on personal spending and income, and economists project another solid advance in household spending. Sustained growth in consumer spending helps increase the chances that the economy will continue to expand.

Other economic data includes August new home sales, second quarter gross domestic product, along with 2019 annual GDP revisions, weekly jobless claims and August durable goods orders.

What Bloomberg Economics Says:

“In our view, the Fed’s jumbo cut increases the chance of a soft landing, but by no means ensures it. Our baseline is for the unemployment rate to reach 4.5% before the end of 2024, before rising to 5% next year.”

— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, Economists. For a full review, click here

In Canada, GDP data for July and a flash estimate for August are expected to show weak growth in the third quarter, likely below the Bank of Canada’s forecast of 2.8% annualized expansion. Meanwhile, central bank governor Tiff Macklem will speak at a banking conference in Toronto.

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Elsewhere, the OECD will unveil new economic forecasts on Wednesday, the central banks of Switzerland and Sweden may cut interest rates and their Australian counterpart is expected to remain on hold.

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

Asia

The Reserve Bank of Australia is expected to keep its cash rate target unchanged at 4.35% when the board meets on Tuesday, with attention likely to fall on whether Governor Michele Bullock maintains her dovish tone after strong figures from of the workforce led traders to reduce bets on a December rate cut.

Bloomberg Economics still sees a path to potential RBA easing in the fourth quarter. The authorities will have to wait until Wednesday to see if Australian inflation cooled for a third month in August.

Other countries releasing inflation updates include Malaysia and Singapore, where price growth is expected to slow in August.

Japan gets fresh inflation data with the release of consumer prices from Tokyo on Friday, which are expected to have risen at a pace that exceeded the Bank of Japan’s 2 percent target in September.

Purchasing managers’ indices for September are due from Australia and India on Monday and from Japan a day later.

In China, the 1-year medium-term lending rate is expected to remain unchanged at 2.3%, and Friday’s data will show whether industrial profit growth maintained its momentum in August after rising to the rapid level of the past five months in July.

Trade statistics are due from South Korea, Thailand and Hong Kong.

Europe, Middle East, Africa

Four central bank decisions are scheduled in Europe, where investors may question policymakers’ appetite to follow the Fed’s footsteps with a half-point cut.

This is certainly the case with the Swiss National Bank on Thursday. While most economists are predicting a quarter-point move, observers say the U.S. cut has increased the chances of a move of the same size as officials grapple with the franc’s persistent strength. This is the last meeting for President Thomas Jordan, whose term ends at the end of the month.

Earlier in the day, Sweden’s Riksbank is expected to cut borrowing costs by a quarter of a point for the third time this year, taking the rate to 3.25 percent and charting a path to further cuts.

Current guidance is for two or three more moves in 2024, including Wednesday. Policymakers talked about a half-point cut at last month’s meeting, and while that talk could return again, most economists think the central bank will more likely wait until November to make a bigger move.

Meanwhile, in Eastern Europe, both the Hungarian central bank on Tuesday and its Czech counterpart on Thursday are expected to produce cuts of a quarter of a point.

In the euro zone and the UK, an initial look at purchasing managers’ indices for September will be released on Monday, signaling the state of private sector activity at the end of the third quarter.

With Germany’s weakness a focal point for investors, the Ifo business confidence gauge will be a highlight on Tuesday, the same day Bundesbank President Joachim Nagel is due to speak on the economy. New forecasts from the country’s economic institutes are scheduled for Thursday.

French and Spanish inflation readings for September will draw attention on Friday, hinting at the overall outcome for the region ahead next week. Economists predict that both countries’ values ​​will fall below 2%.

Besides Nagel, more than half a dozen eurozone policymakers are scheduled to speak, including European Central Bank President Christine Lagarde, chief economist Philip Lane and Spain’s new central bank chief Jose Luis Escriva.

On the African continent, various central bank decisions are also scheduled:

• Nigerian officials are likely to end a tightening cycle on Tuesday that has lifted the rate to 26.75 percent from 11.5 percent in just over two years. They will be encouraged by inflation cooling to a six-month low as they weigh the impact of flooding in the country and a steep rise in petrol costs on rising prices.

• Morocco’s central bank is likely to keep its interest rate at 2.75% to allow June’s surprise cut to penetrate the domestic market. The kingdom needs low rates to facilitate investment and limit unemployment. It has massive investment plans to rebuild earthquake-hit areas and infrastructure ahead of the 2030 FIFA World Cup.

• In South Africa, Lesotho officials may deviate from South Africa’s rate cut and leave borrowing costs at 7.75 percent as inflation remains high. While Lesotho tends to mirror its neighbour’s policy, the key rate is already 25 basis points lower.

Elsewhere, Zambia’s Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy bounce back from one of the toughest years it has faced this century when he unveils his 2025 budget for the second largest producer of copper from Africa.

latin america

Brazil watchers will have a lot to digest, with minutes from the central bank’s September meeting and a quarterly inflation report taking center stage.

The former could provide a more detailed policy roadmap after a quarter-point hike on September 18 to 10.75%, while the latter updates all sorts of economic estimates and scenarios. Look for the BCB to mark down forecasts for inflation, the key rate and GDP growth.

As the week ends for Latin America’s largest economy, jobs data is likely to show Brazil’s labor market remains at historically tight levels, while mid-month inflation may have stalled near the top of the bank’s target range central.

Argentina is scheduled to release GDP proxy values ​​for July, which could support the view that the economy has passed the 2024 peak and is beginning a recovery in the second half.

In Mexico, waning domestic demand could see another set of light retail sales prints – following negative annual and monthly readings in June – while mid-month inflation data is not likely to give policymakers politics a slam dunk reason to cut or hold when Banxico meets a few days later.

Early consensus expects a quarter-point cut to 10.5%, though some analysts see a possible half-point cut to keep pace with the Fed.

–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill and Souhail Karam.

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