Investor attention this week will be on meetings of three of the globe’s big four central banks: the Fed, the Bank of Japan, and the Bank of England, which will discuss inflation (and the recent rise in cost pressures) and interest rates.
Only the Bank of England is tipped to raise rates after the European Central Bank’s 0.25% boost last week.
In Australia, the minutes from the Reserve Bank board meeting in September will be released tomorrow. These minutes will reflect former Governor Philip Lowe’s time as the central bank’s leader.
Economists from Moody’s and others, such as AMP’s Shane Oliver, do not expect the Fed to raise rates again. However, they do anticipate a continuation of ‘hawkish’ commentary from all four central banks, including the Bank of England and its anticipated rate rise.
One issue the Fed will be closely monitoring is the start of strikes at three US carmakers – GM, Ford, and Stellantis (including Chrysler) – which began at midnight last Thursday. These workers are demanding pay raises and other benefits larger than what the car companies seem willing to offer.
The significant pay raises offered (but rejected) by the car companies could concern the Fed as potential catalysts for another round of pay increases in a tight labor market. The Fed will be watching to see if the strike continues and affects demand, consumer spending, employment levels, and inflation by interrupting supply chains once again.
Dr. Oliver says the Fed is expected “to leave interest rates on hold, reflecting cooling inflation pressures and the significant tightening already undertaken, leaving room for a pause but retaining a mild tightening bias.”
Moody’s economists think similarly, writing on Friday: “We expect—and the consensus widely agrees—that the FOMC (Federal Open Market Committee) will keep the funds rate steady at 5.25%-5.5%. The somewhat unfavorable inflation report for August adds some downside risk, but it is likely that the Fed will wait until later in the year to implement further rate hikes, if any.”
Housing data for August will also be released this week, along with early business activity survey data in Asia, Australia, Europe, and the US.
The Bank of England is forecast to lift its policy rate to 5.5% from 5.25% on Thursday, reflecting still-high inflation and strong UK wage growth.
Dr. Oliver expects UK inflation for August, to be announced on Wednesday, to have increased slightly from July’s annual rate of 6.8% due to higher energy costs, as consumer prices have risen recently in other economies.
On Friday, the Bank of Japan’s meeting is forecast to leave monetary policy unchanged but possibly signal a move toward winding back monetary stimulus, consistent with recent comments by Governor Ueda.
Japanese inflation data for August, also to be released on Friday, is expected to show a fall to 3% yoy (from 3.2%), but core inflation (excluding food and energy) is likely to rise further to 2.8% yoy.
The market believes that the Bank of Japan will start tightening monetary policy from early 2024 by ending guidance on interest rates.