Will Jerome Powell signal a jumbo Fed rate cut at Jackson Hole?
All eyes will turn to the mountains of Wyoming in this week for the Federal Reserve’s Jackson Hole symposium, your best chance every year to see a Nobel Prize-winning economist in a cowboy hat.
The highlight will come Friday, when Fed Chair Jerome Powell speaks about the economic outlook in a keynote address at 10 a.m. New York time.
With the US central bank approaching a crucial pivot point, it’s difficult to overstate how much attention financial markets will be paying. For starters, they’re looking for confirmation the Fed will lower rates in September. But more drama surrounds what happens after that and the pace of additional cuts over the next several months as the Fed confronts the dual risks to both inflation and employment.
Bank of England Governor Andrew Bailey will also make and appearance on Friday, and Philip Lane, chief economist at the European Central Bank, will speak a day later. The conference is typically good for a torrent of additional commentary from a broad range of policymakers and economists.
Schedule details for the Friday-Saturday symposium will be made public Thursday evening local time.
Just before the event kicks off, and also likely to attract scrutiny, the minutes from the Fed’s July 30-31 policy meeting will be released on Wednesday.
“It’s highly likely Powell will use his Jackson Hole address to declare it will soon be the ‘appropriate’ time to cut rates. So attention will focus on a narrower question: Will he or won’t he signal an openness to a 50-basis-point move? We don’t think Powell will shut the door to a 50-bp cut, but he also won’t show any particular inclination toward it. That’s because policymakers likely haven’t reached a consensus on the urgency of cutting rates,” Bloomberg Economics says.
Fresh figures on US housing demand, as well as weekly jobless claims, are the highlight of a lean week for US economic data. On Thursday, the National Association of Realtors will issue data on previously-owned home sales, followed the next day by the government’s snapshot of new-home purchases. Both are seen showing modest increases, suggesting the residential real estate market is stabilizing after a recent drop in mortgage rates.
On Wednesday, the Bureau of Labor Statistics is slated to release its preliminary benchmark revision estimate for payrolls in the year through March. The final figures are due early next year.
Further north, Canadian inflation data for July will be important to keeping the central bank on track to deliver a third straight rate cut in September. The Bank of Canada expects uneven progress toward the 2% target and is increasingly focused on downside risks, so it’s primarily looking to see sustained evidence of easing. Retail sales data for June and a flash estimate for July will also shed light on the health of the country’s consumer.
Elsewhere, flash purchasing manager index readings for Japan, the UK and the euro area will be in focus, while China is expected to keep loan prime rates steady. Sweden’s Riksbank is likely to cut rates, while central banks in Turkey, Thailand, Indonesia and South Korea are set to hold.
Asia
Bank of Japan Governor Kazuo Ueda grabs the spotlight on Friday when he appears in parliament to explain the thinking behind the July 31 rate hike after some traders cited the move as a catalyst for market ructions earlier this month. Ueda is also likely to discuss the policy outlook.
Elsewhere in central banks, the People’s Bank of China is expected to keep the 1-year an 5-year loan prime rates steady after last month’s surprise cuts. Bloomberg Economics forecasts the PBOC will cut the rates by 10 basis points in the fourth quarter.
On Tuesday, the Reserve Bank of Australia releases minutes from this month’s meeting as economists look for signs of any softening in the RBA’s hawkish rhetoric, and the Bank of Korea is expected to hold its benchmark rate at 3.5% to ward off a rise in household debt. Thailand and Indonesia are also predicted keep borrowing costs unchanged.
The region gets PMI statistics for Australia, Japan and India on Thursday, and Thailand’s second-quarter economic growth is seen accelerating year on year and slowing versus the prior period.
Japan’s consumer inflation probably picked up for a third straight month in July, and trade figures are due during the week from Japan, Malaysia and New Zealand. Malaysia also publishes inflation data.
Europe, Middle East, Africa
With the European Central Bank widely expected to resume rate cuts in September, all eyes will be on data for negotiated wages and on the account of policymakers’ July decision — both of which are due on Thursday.
Flash PMIs for Germany, France and the euro area are also scheduled for that day, with economists predicting similarly poor readings as last month.
In situation in the UK — which just saw bumper numbers for second-quarter GDP — is much rosier, and PMI numbers there are likely to be upbeat.
On Wednesday data from South Africa is set to show inflation slowed to an 11-month low of 4.8% in July from 5.1% a month earlier. That could open room for the central bank to cut rates at its September meeting if this disinflation process continues. Governor Lesetja Kganyago has repeatedly said that it will adjust rates once inflation is sustainably at the 4.5% midpoint of its target range.
Five central bank rate decisions are scheduled in the region:
- On Tuesday, the Riksbank is expected to announce another cut, with Swedish officials likely to resist domestic calls for taking the benchmark rate half a percentage point lower, and go with a more conventional 25 basis-point reduction.
- On the same day, the Turkish central bank is likely to leave its policy rate at 50% for a fifth straight month amid visible signs of a cooling economy though annual inflation still hovers above 60%.
- On Wednesday, the Iceland is set to keep borrowing costs on hold at 9.25%, the highest rate in western Europe. Market participants expect monetary easing to start in the final quarter of the year, according to a survey by the central bank published Friday.
- Also that day, Rwanda is poised to cut its key interest for a second straight meeting as inflation remains subdued.
- On Thursday, Botswana will likely leave its key rate unchanged to support the economy that shrank for the first time since the peak of the pandemic in the three months through March and as inflation remains within target.
Latin America
Chile’s economy likely shrank in the three months through June on weaker investment and exports, but the consensus call is for a rebound in the second half.
Economists surveyed by the central bank forecast 2024 GDP growth of 2.3%, up from 0.2% last year.
Paraguay’s central bank in July kept its key rate unchanged at 6% for a fourth straight month and may do so again this week after annual inflation inched up to 4.4% in July.
Argentina last month posted unexpectedly strong GDP-proxy data for May, due largely to a bumper harvest that won’t buoy the the June results reported this week.
In Mexico, almost two years of double-digit interest rates are cooling domestic demand, and can be expected to weigh on the June retail sales, GDP-proxy and full second-quarter output results posted this week. Economists in Citi’s biweekly survey see full-2024 GDP growth slowing for a third year to 1.7%.
Mid-month inflation data will give Mexico watchers a first chance to evaluate Banxico’s Aug. 8 quarter-point rate cut to 10.75%.
The meeting minutes may shed more light on Banxico’s view that a run-up in food prices will prove temporary and that slowing growth should help rein in consumer price increases.
