Jerome Powell’s remarks in the coming week will be scrutinized by investors for clues about how long the Federal Reserve is willing to wait before cutting interest rates.
For the last time the chairman of the US central bank saidHe signaled that policymakers were likely to keep borrowing costs high longer than previously thought, pointing to a lack of further progress in reducing inflation and persistent strength in the labor market.
latest price datawhich showed stable core inflationcoupled with expectations of a strong jobs report on Friday, are unlikely to force the Fed chief to change his position.
Powell will speak to reporters after the Fed’s rate decision on Wednesday, when the central bank is expected to keep borrowing costs at a more than two-year high. Expectations for rate cuts have been pushed back to 2024, with investors now betting on a maximum of two cuts by the end of the year.
Rounding out the week is the monthly jobs report, offering a fresh look at the state of the US labor market. Economists forecast nonfarm payroll growth to slow to a still strong pace in April amid persistently low unemployment.
What Bloomberg Economics says:
“We expect Powell to make a hawkish turn. At a minimum, he will likely indicate that the average FOMC participant now expects “smaller” cuts this year. In a more aggressive direction, he could hint at the possibility of no cuts – or even suggest that a raise could be on the table, although not at the current baseline.
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists.
We’ll also receive updates on quarterly, closely monitored employment cost metrics, as well as monthly job openings and production data.
Looking north, Canada’s gross domestic product data for February could show modest growth in the economy, giving the Bank of Canada a choice as it weighs when to move toward more accommodative policy.
In other countries, eurozone data may show inflation has stopped slowing down and the economy began to grow again, while Chinese studies would indicate the strength of expansion there. Central banks from Norway to Colombia will set rates and the Paris-based OECD will release new global forecasts on Thursday.
Asia
China shed light on the outlook for economic growth in the first quarter with the release of official Purchasing Managers’ Index data on Tuesday. The report will indicate whether manufacturing activity increased for a second month in April.
There may be some seasonal softness due to fewer business days, but the overall trend is likely to point to a continued recovery, according to Bloomberg Economics. The Caixin indicator, which has been hovering above the 50 threshold separating expansion from contraction for five months, is expected to be released on the same day.
Global trade will be in focus as Australia, South Korea, Thailand, Sri Lanka and Vietnam release trade data during the week.
Japan will receive a raft of data on Tuesday that is expected to show a recovery in industrial production in March, as well as data on retail sales and the unemployment rate.
And South Korea’s consumer inflation data on Thursday is forecast to show price growth will slow slightly but remain above the Bank of Korea’s target, giving the central bank further incentive to delay any policy turn.
Europe, Middle East, Africa
In the eurozone, data could show that slowing inflation stalled in April for the first time this year. Consumer prices were likely up 2.4% from a year earlier, in line with March results, as electricity prices rose.
A baseline measure that excludes such volatile items could give officials confidence that the direction of travel is still downward, although national figures are likely to show some discrepancy. Germany and Spain, which will release their data on Monday, may have experienced higher inflation.
The eurozone report will be released on Tuesday, along with the latest GDP data. Economists believe the region is likely to have returned to growth of a minimal 0.1% in the first quarter after the shallow recession it experienced at the end of 2023.
As with inflation, Tuesday’s numbers could mask uneven results across the region. To get a feel for this, investors will likely be keeping a close eye on Monday’s Irish economic growth data, which has a history of volatility.
Overall, the reports could echo European Central Bank President Christine Lagarde’s observation this month that the economy is weak and facing “bumps in the road” for inflation.
Switzerland will release consumer price data on Thursday that could show inflation remains well below the central bank’s 2% ceiling target.
And the next day in Turkey, investors will monitor progress in slowing consumer price growth.
Much of the market believes Turkey’s inflation rate continues to rise from 68.5% in March to around 75% in the coming months, despite nearly a year of aggressive rate hikes. Until price increases slow, bond investors are unlikely to return to the lira debt market, a key goal of the Turkish government.
In the wider region, three monetary decisions are made:
- Malawi officials may be persuaded on Tuesday to raise its key rate again to curb inflation, which is likely to remain high due to crop damage from adverse weather conditions.
- The Czech central bank is set to announce its latest decision on Thursday, with policymakers expected to cut borrowing costs by 50 basis points.
- Norges Bank may leave its deposit rate unchanged the next day as Norway’s economy performed better than expected even as inflation slowed faster than forecast. Investors will be watching for clues about whether policymakers are becoming more cautious about starting to cut borrowing costs in the fall.
Latin America
Mexico’s first-quarter output data will likely show the economy suffered a slight contraction in the three months to December. The consensus among analysts is that economic growth will slow for a third year in 2023, to about 2.4% from 3.2% in 2023.
Brazil will publish a series of reports, including headline inflation figures, a survey of central bank expectations, the current account, industrial production and the country’s unemployment rate.
Since June last year, unemployment in Latin America’s largest economy has been below 8%, which is seen by many Brazil watchers as the economy’s unemployment inflation rate not accelerating.
Chile will release a host of indicators for March, including retail sales, unemployment, industrial production, manufacturing, copper production and GDP estimates. Stronger-than-expected economic growth and rising inflation prompted the central bank to slow the pace of policy easing earlier this month.
In Peru, an April inflation report in the capital Lima may show prices are finally back within the 1% to 3% range, although still above the 2% target.
Colombia’s central bank is widely seen as extending its easing cycle by cutting its key rate by half a point for the second time in a row, which would bring the key rate down to 11.75% amid a sustained process of disinflation. BanRep will also publish its quarterly inflation report, updating growth and inflation forecasts and providing a revised monetary policy outlook.