If last week all the media covering the economy was focused on Christine Lagarde, next week they will be focused on the decision of Jerome Powell’s team on Wednesday, when the Federal Reserve meets to decide whether to do so Market expects will finally slow down the process of raising interest rates or, on the contrary, restart it, since the possibility that it will not be the last and that the 5.5% cap will be reached in December is now easily excluded. It is worth remembering that after the break in June, the expected last hike ended in July, leaving the reference price of money at 5.25%.
On Wednesday last week, inflation data for August in North American countries was released, which came in higher than expected (3.7%, a tenth higher) and marked the first increase since June last year. This only creates further doubts about the monetary institution’s next decisions. Somewhat more relief came from the underlying data, which continued to fall to 4.3% year-on-year. From Bankinter they explain precisely that “the easing of underlying inflation, together with the weakening of the labor market and the weakness of the PMIs, reduces the pressure on the Fed to make changes at its next meeting.”
Recent moves in U.S. Treasury bond prices “reflect more robust than expected economic activity, with expectations that interest rates will persist for even longer,” explains Pictet WM. “In fact, we expected a recession in the second half of this year and have now postponed it to the first half of next year, so we do not expect the Fed to begin cutting rates until the end of the second quarter of next year.” and About 4% at the end of 2024,” he adds. However, this will not be the only major central bank making decisions this week, as there could also be opposing moves in both Brazil and the UK on this. If the forecasts come true, the Bank of England will raise them by 25 basis points, while the South Americans could reduce them further after last month’s 50-point fall.
Back on American soil, the Fed will share some of the weekly spotlight with advanced September data from the PMI surveys. In the case of the composite data and the services data, they remain above 50 points, while the production data is already in the contraction zone, i.e. below this threshold.
Europe will confirm its inflation
On this side of the Atlantic, after last week’s increase by the ECB, this Tuesday the final inflation data for the month of August will be published, which we remember remained at 5.3% both at the general level and at the underlying level for year. Any surprise up or down will be interpreted before the next meeting in October.
“As long as inflation in Europe does not unexpectedly rise again, the ECB has reached its final interest rate. This is how bond markets interpreted the ECB’s decision, which was widely seen as a dovish rate hike and led to a general fall in bond yields,” they explain from the M&G.
Furthermore, in the UK, the August price increase, expected to be 6.8%, will be announced before the tariff meeting. Without leaving Europe, the progress of the PMI surveys for September will also be published towards the end of the week, which will confirm the pessimism of purchasing managers who had already pointed to a slowdown in economic activity last month.