Fed leads global 500 basis point attack on inflation: Eco Week

Fed leads global 500 basis point attack on inflation: Eco Week

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

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Three days of central bank decisions are expected to bring rate hikes totaling more than 500 basis points together, with the potential for a bigger toll if officials opt for more hawkishness.

Starting the attack will be Sweden’s Riksbank on Tuesday, with policymakers expecting economists to accelerate tightening with a 75 basis point move.

That’s just a prelude to the main event, when US officials are expected on Wednesday to raise borrowing costs by the same amount to keep pressure on resurgent inflation. After another CPI report topped forecasts, some investors have even bet on a mammoth 100 basis point increase.

On Thursday we will see the most widespread action. Central banks in the Philippines, Indonesia and Taiwan are expected to raise interest 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 South African Central Bank will continue efforts with a move of 75 basis points expected and Egypt may also act.

However, three major central banks are likely to be conspicuously absent from the hike. On Wednesday, Brazil’s policymakers may pause after an unprecedented string of hikes over the past 18 months.

The next day, Bank of Japan officials are likely to stick to an unchanged stance, even as they worry about the yen’s weakness. Turkish peers will then likely continue their unorthodox approach of keeping interest rates low — despite inflation above 80%.

What Bloomberg Economics Says…

“In a busy week for monetary policy, we expect the Fed to hike by 75 basis points and the Bank of England 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, as well as an update on lending rates from the PBOC.”

–Tom Orlik, Chief Economist. For a full preview, click here

Elsewhere next week, US housing data, a budget announcement from the new UK government and Japan’s inflation data will also draw investors’ attention.

Click here for what happened last week and below is our content on what’s coming in the global economy.

US economy

While all eyes are 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 pre-owned home sales are scheduled for release on Tuesday and Wednesday, respectively. The median forecast for existing home 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 currency markets as the yen tests 145 to the dollar.

Governor Haruhiko Kuroda is expected to remain firm on keeping policy unchanged, although he is likely to end the Covid support loan program, which may pave the way for adjusting future guidance.

Thursday will see 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.

Further down the line, Reserve Bank of Australia’s Jonathan Kearns will speak on Monday about interest rates and property prices, while RBA Deputy Governor Michele Bullock will speak to Bloomberg on Wednesday at an exclusive event.

On the data front, Japan’s national inflation data on Tuesday is expected to continue rising. Early South Korean trade data on Wednesday will continue to paint a picture of the pace of the global economy’s slowdown. And Singapore releases inflation data on Friday.

Europe, Middle East, Africa

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

The BOE meeting will be the first chance for officials to respond to the changed outlook created by new Prime Minister Liz Truss’ efforts to contain the cost-of-living crisis and the pound’s fall to its lowest level since 1985. Economists predict at least half -Single rate hike as officials grapple with inflation that remains uncomfortably high.

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

The SNB may raise interest rates by 0.75 of a percentage point in its quarterly decision on Thursday, an aggressive move to respond to the rise in the euro zone, even though inflation in Switzerland is much lower than in the rest of Europe. Norway’s central bank is likely to rise half an hour later as well, maintaining an accelerating pace after core consumer prices clearly beat its forecast.

Earlier in the week, alongside an expected rate hike from Sweden’s Riksbank, investors will focus on how much policymakers plan to step up future tightening plans amid mounting signs that the biggest Nordic economy is headed for recession in 2023.

In the eurozone, speeches by European Central Bank vice-president Luis de Guindos and Bundesbank chief Joachim Nagel are likely to focus on investors, along with the first round of September’s purchasing managers’ surveys due on Friday.

Looking south, data in Ghana on Tuesday will likely show that economic growth slowed to 3% in the second quarter as rising interest rates and a falling cedi further pushed up already rising prices.

Meanwhile, on Wednesday, a report in South Africa is set to reveal that inflation eased in August after the cost of petrol fell, although interest rates are expected to remain above the central bank’s 6% ceiling.

Concerns about further rand weakness and the unwinding of price expectations will be at the heart of the SARB’s Monetary Policy Committee on Thursday. Interest rate forwards starting in one month — used to speculate on borrowing costs — are fully priced for a 75 basis point increase, with odds of a bigger move of 100 basis points at 82%.

Turkey on Thursday is likely to leave interest rates on hold after a shock cut in August, although a slowing economy and approaching elections next year mean more stimulus remains on the agenda.

Egypt will likely raise interest rates on the same day as inflationary pressures increase and the pound continues its gradual decline.

Latin America

Brazil’s central bank’s award-winning survey of economists leads the week, with an eye firmly on 2023 and beyond. Later on Monday, Colombia reports July economic activity, which likely shows some cooling from May and June.

Next, second-quarter production data in Argentina may show surprising strength given the political and market turmoil plaguing South America’s second-largest economy.

The highlight in Chile will be the minutes of the central bank’s Sept. 6 meeting, where policymakers stepped up tightening with a bigger-than-expected 100-basis-point increase to push the key interest rate to a record 10.75 percent.

Look for Mexico’s mid-month consumer price readings to pick up slightly from 8.77%, suggesting Banxico’s peak inflation forecast for the third quarter may have been reached.

Brazil’s central bank is widely expected to keep its key interest rate unchanged at 13.75% after a record 12 straight hikes from 2% in March 2021. Traders see less than a 50% chance of another hike in the coming months and it is likely Brazil — among the first to begin tightening worldwide in March 2021 — also becomes among the first to end.

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