Fed poised to hike rates again as inflation slows

Policymakers are set to raise their benchmark federal funds rate by a quarter percentage point on Wednesday to a range of 4.5% to 4.75%, dialing back the size of the increase for a second-straight meeting.

The move would follow some recent data that suggest the Fed’s aggressive campaign to slow inflation is working.

Philadelphia Fed President Patrick Harker said in a January 20 speech, “I expect we will raise rates a few more times this year, although, in my mind, the days of raising them 75 basis points at a time are certainly past.” ” , “An increase of 25 basis points would be appropriate going forward.”

important question for Fed Chair Jerome Powell The press conference after their meeting will reveal just how high the central bank intends to raise rates, and what officials need to see before stopping.

Fed officials have made clear that they also want to see evidence that the imbalance between supply and demand in the labor market is starting to improve.

Hiring probably slowed in January, according to economists polled by Bloomberg who estimated employers added 185,000 jobs compared with 223,000 in December. They see the unemployment rate ticking up to 3.6%, still near a five-decade low, and average hourly earnings rising 4.3% from a year ago, according to their latest estimate, which is the lowest rate since last month. Is.

irrigated Another important reading on inflation will come on Tuesday when the Labor Department releases the Employment Cost Index, a broad measure of wages and benefits. Job opening figures for December are also due Wednesday as well as a January survey of manufacturers.

Here’s what Bloomberg Economics says:

“The Fed faces a dilemma: On the one hand, inflation data has come in softer than expected, and activity indicators have shown a slowing over the past month; On the other hand, financial conditions have eased as traders believe the Fed will cut rates soon. The data will justify small rate hikes, but the Fed is likely to see easier financial conditions – while inflation remains uncomfortably above target – as a reason to act hawkishly.

—Anna Wong, Eliza Winger and Neeraj Shah, economists. For full analysis, click here

Elsewhere, a day after the Fed, the European Central Bank and the Bank of England will each probably hike rates by half a point, after euro-zone data is likely to show slowing inflation and a stable economy. Meanwhile, surveys from China may reveal an improvement, Brazil’s central bank may keep borrowing costs unchanged, and the International Monetary Fund will publish its latest global economic forecast.

Asia

China has returned to work on the strength of its economy after the Lunar New Year holiday.

Official PMIs due on Tuesday are expected to show a sharp recovery from December’s dismal reading, but a clear expansion in the manufacturing sector is still not expected. After that the PMI of the whole of Asia will come on Wednesday.

Japan releases data on factory output, retail sales and unemployment that could cast doubt on the strength of the economy’s rebound from the summer contraction.

India unveils its latest budget in the middle of the week as policymakers try to keep growth on track while reining in the deficit.

Export data from South Korea will provide a pulse check on global commerce on Wednesday, while inflation data from the Bank of Korea the next day will be closely scrutinised.

Business data is also due from New Zealand, although the jobless data will be the main concern for the RBNZ as it leaves little room for rate hikes.

The Reserve Bank of Australia will be eyeing house prices and retail sales data for its rate decision next week.

Europe, Middle East, Africa

Key rate decisions will continue to dominate the news in Europe, with central banks in both the euro zone and the UK meeting for the first time of the year.

Ahead of the ECB on Thursday, key data will grab attention for clues on the path of policy. Economists are divided on whether GDP for the euro zone on Tuesday will show a contraction in the fourth quarter – potentially the start of a recession – or whether the region is left out of recession.

The next day, euro-zone inflation is forecast to have slowed for a third straight month in January, although a small minority of forecasters predicted an acceleration.

Growth and consumer-price data from the region’s three biggest economies — Germany, France and Italy — are also due in the first half of the week, making for a busy few days for investors.

The so-called core underlying measure of inflation may be showing some weakness. This gauge is drawing more attention from officials justifying more aggression on tightening policy.

The ECB’s decision is almost certain to include both a half-point rate hike and more details of plans to liquidate bond holdings built up over years of quantitative easing.

Investors may focus on any outlook she reveals at her press conference for March, given President Christine Lagarde’s penchant for hinting at future decisions, at a time when officials are increasingly Whether to slow down the tightening or not.

The BoE’s decision is also due on Thursday, and could also include a rate hike of half a point. This would lead to Britain’s sharpest monetary tightening in three decades. While inflation has fallen over the past two months, it remains more than five times the central bank’s 2% target.

Also that day, the Czech Central Bank is likely to keep rates unchanged at the highest level since 1999 and present a fresh inflation outlook.

Looking south, Ghana is expected to raise borrowing costs on Monday following sharper-than-expected price increases and renewed volatility in the cedi in the last two months of 2022, as the country negotiates a restructuring plan for its debt. doing.

On the same day, Kenyan policymakers are set to slow tightening after holding inflation low for two straight months. They are expected to increase the borrowing cost by a quarter of a percentage point.

Egypt, where yields on local Treasury bills have already widened to a record above peers in emerging markets, may hike rates again on Thursday as inflation continues to run at a five-year high.

latin america

Mexico this week became the first of the region’s large economies to post October-December output. Most analysts expect GDP to shrink for the third quarter in a row, and more than a few are forecasting a mild recession sometime in 2023.

December remittance data due midweek is expected to comfortably push the full 2022 figure to over $57 billion, easily bettering the previous record of $51.6 billion set in 2021.

Chile posted at least seven economic indicators over the course of three days, led by a December GDP-proxy reading that is expected to be in line with an economy headed for recession.

In Colombia, the readout of the central bank’s January 27 meeting – where policymakers campaigned for a record hiking trip – will be posted on Tuesday. At 12.75%, the BanRep may be nearing its terminal rate.

In Brazil, look for a broad measure of inflation to slow in January, while industrial production continues to struggle.

With inflation now only making glacial progress back on target, Brazil’s central bankers have no choice but to keep the key rate at 13.75% for a fourth meeting this week. Economists surveyed by the bank see a decline of just 229 basis points over the next four years, which would mean missing the target for a seventh straight year in 2025.

The text of this story is published from a wire agency feed without any modification.