Fed Leads Global Attack of 500 Basis Points on Inflation: Eco Week

Fed Leads Global Attack of 500 Basis Points on Inflation: Eco Week

(Bloomberg) — The U.S. Federal Reserve and some of its global peers will launch a swift attack on inflation in the coming week as their commitment to reining in consumer prices grows ever more determined.

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Three days of decisions from the central bank are expected to result in interest rate hikes totaling more than 500 basis points, and the tally could be bigger if officials choose to be more aggressive.

Sweden’s Riksbank will begin the attack on Tuesday, and economists expect policymakers to increase the tightening with a move of 75 basis points.

That is just a prelude to the main event, when US officials are expected on Wednesday to raise borrowing costs by the same amount to keep up the pressure on resurgent inflation. After another consumer price index report that beat forecasts, some investors even bet on a massive 100 basis point hike.

Thursday will be the most extensive action. Central banks in the Philippines, Indonesia and Taiwan are expected to raise rates. The focus then shifts to Europe, with increases of half a point or more predicted by the Swiss National Bank, Norges Bank and the Bank of England. Further south, the Reserve Bank of South Africa will continue efforts with a 75 basis point move expected, while Egypt may also act.

Three major central banks are likely to be conspicuously absent from the sea of ​​wandering, however. On Wednesday, Brazil’s policymakers can take a break after a series of unprecedented increases over the past 18 months.

The next day, Bank of Japan officials are likely to keep their stance unchanged even as they worry about weakness in the yen. Then, their Turkish peers will likely continue their erratic approach to keeping rates low — despite inflation above 80%.

What Bloomberg Economics has to say…

“In a busy week for monetary policy, we expect the Fed to raise by 75 basis points and the Bank of England to raise by 50 basis points. Also on next week’s calendar are decisions from the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, and an update on prime lending rates from the PBOC.”

–Tom Orlik, chief economist. For a full preview, click here

Elsewhere in the week ahead, US housing data, a fiscal announcement from the new UK government, and Japanese inflation data will also attract investors’ attention.

Click here for what happened last week and below is our take on what’s to come in the global economy.

US economy

While all eyes are very much on the Fed’s decision and Chairman Jerome Powell’s press conference, the calendar of economic data will provide clues about the impact of central bank tightening so far this year.

Reports on August housing starts and previously owned home sales are set to be released on Tuesday and Wednesday, respectively. The median forecast for existing property purchases calls for a seventh straight monthly decline.

Weekly jobless claims and S&P Global manufacturing and services surveys for September will round out a relatively quiet data week.

Asia

The BOJ board will make its policy decision on Thursday amid speculation that Japan is close to intervening in the currency markets as the yen tests 145 to the dollar.

Governor Haruhiko Kuroda is expected to stand firm on keeping policy unchanged, although he is likely to end his Covid support loan program, which could pave the way for an adjustment in advance guidance.

Thursday sees a central bank marathon in Asia, with Indonesia, the Philippines and Taiwan all setting policy, and the Hong Kong Monetary Authority reacting to the Fed’s overnight move.

Below, Reserve Bank of Australia’s Jonathan Kearns will speak on Monday about rates and property prices, while RBA Deputy Governor Michele Bullock will be speaking at Bloomberg on Wednesday in an exclusive event.

On the data front, Japan’s national inflation data out Tuesday is expected to continue to rise. South Korea’s early trade data on Wednesday will continue to provide insight into the pace of the slowdown in the global economy. And Singapore releases inflation data on Friday.

Europe, Middle East, Africa

While the UK will mark Monday as a national holiday for the funeral of Queen Elizabeth II, monetary policy business will resume as usual on Thursday in a decision that will be delayed by a week to allow for mourning.

The BOE meeting will be the first opportunity for officials to respond to the changed outlook created by new Prime Minister Liz Truss’ efforts to contain the cost of living crisis, with the pound falling to its lowest level since 1985. Forecast at least one and a half economists. – point rate increase as officials grapple with inflation that remains uncomfortably high.

The following day, new Chancellor of the Exchequer Kwasi Kwarteng will deliver a “fiscal event” where he is expected to confirm plans to reverse a recent rise in national insurance – payroll tax – and set out more details of the Truss support package .

The SNB could raise rates by 0.75 percentage points at its quarterly decision on Thursday, an aggressive move to match the expansion of the eurozone, even as inflation in Switzerland is much lower than in the rest of Europe. Norway’s central bank is also likely to raise half an hour later, maintaining a faster pace after headline consumer prices clearly beat its forecasts.

Earlier in the week, along with an expected rate hike by Sweden’s Riksbank, investors will focus on how policymakers plan to accelerate future inflation plans amid growing evidence that the largest Nordic economy is ahead of retreat in 2023.

In the euro region, speeches from European Central Bank Vice President Luis de Guindos and Bundesbank chief executive Joachim Nagel may target investors, along with the first round of purchasing managers’ surveys for September, due on Friday.

Looking south, data in Ghana on Tuesday is likely to show economic growth decelerating to 3% in the second quarter due to rising rates and a decline in the cedi which has pushed up already rising prices.

Meanwhile, on Wednesday, a report in South Africa indicated that inflation eased in August following a drop in gasoline costs, although the rate is expected to remain above the central bank’s 6% ceiling.

The SARB’s Monetary Policy Committee will on Thursday address concerns about further random weakness and the un-anchoring of price expectations. Forward rate agreements that start in one month — used to speculate on borrowing costs — are fully priced in for a 75 basis point increase, with an 82% chance of a bigger move of 100 basis points.

Turkey is likely to leave rates on hold on Thursday after a shock cut in August, although a slowing economy and the approach of next year’s elections mean more stimulus is still on the agenda.

Egypt is likely to raise interest rates on the same day that inflationary pressures rise and the pound continues to gradually decline.

Latin America

A valuable survey of Brazilian central bank economists leads the week, with the eye firmly on 2023 and beyond. Later on Monday, Colombia reports July economic activity, likely showing some cooling from May and June.

First, second quarter output figures in Argentina may show surprising strength given the political and market turmoil threatening South America’s second largest economy.

The highlight in Chile will be the minutes of the central bank’s meeting on September 6, where policymakers stepped up tightening with a larger-than-expected 100 basis point hike to push the key rate to the level a record high of 10.75%.

Look for Mexico’s mid-month consumer price readings to edge up ever so slightly from 8.77%, suggesting that the peak inflation forecast by Banxico for the third quarter may have arrived.

Brazil’s central bank is widely expected to keep its key rate unchanged at 13.75% after a record 12 straight hikes from 2% in March 2021. Traders see a less than 50% chance of another hike in the coming months ahead, and Brazil could be there. — among the first to begin tightening around the world in March 2021 — one of the first to end.

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