Highlights
For this week, the focus is on whether the Federal Open Market Committee will set the stage for starting to lower interest rates in September with a 25-basis point cut while leaving the target for the federal funds rate in a range of 5.25 to 5.50 percent, as expected by many Fed watchers. In its last statement issued after the June 11-12 meeting, the FOMC said it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
The FOMC announcement will come at 2 p.m. EDT (1800 GMT) on Wednesday, and half an hour later, Fed Chair Jerome Powell will hold a news conference to discuss the rate decision. In his semiannual monetary policy report to the Congress delivered earlier this month, Powell pointed to some modest further progress in inflation data but he also stressed that the Fed must look at both upside and downside risks by saying reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation and reducing policy restraint too late or too little could unduly weaken economic activity and employment.
Given resilient US economic growth, Powell is unlikely to drastically change his risk assessment at this point, unlike his counterpart north of the border. Bank of Canada Governor Tiff Macklem told reporters after the bank conducted a 25-basis point rate cut for the second straight month last week: With the target in sight and more excess supply in the economy, the downside risks are taking on increased weight in our monetary policy deliberations. We need growth to pick up so inflation does not fall too much, even as we work to get inflation down to the 2 percent target.
The Bank of England, on the other hand, is expected to start lowering rates by cutting its policy rate by 25 basis points to 5.0 percent, possibly in a split vote, on Thursday despite sticky services and core inflation and solid economic growth. The announcement of the BoE rate decision and minutes is slated for 7 a.m. EDT (1100 GMT/noon London time). At its previous meeting on June 19, the Monetary Policy Committee decided in a 7 to 2 vote to maintain Bank Rate at 5.25 percent. Two members called for a 25-baisis point cut. At the time, the MPC said monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2 percent target sustainably in the medium term.
The Bank of Japan's policy decision after the July 30-31 meeting is expected to be announced sometime between 1130 and 1230 JST Wednesday (0230-0330 GMT Wednesday/10:30 p.m.-11:30 p.m. EDT Tuesday). The results of its June 13-14 meeting were released shortly after it ended at 1216 JST (0316 GMT/11:16 p.m. EDT). Given the lack of evidence that wage hikes at large firms are spreading to smaller firms (services costs are rising slowly), the BoJ board is widely expected to maintain its policy stance and wait until its next meeting on Sept. 20-21 to follow up on its first rate hike in 17 years in March by raising the overnight interest rate target to 0.25 percent from the current range of zero to 0.1 percent. Governor Kazuo Ueda has said underlying inflation estimated by the bank is moving up but still below its 2 percent target.
On Wednesday, the BoJ will also release specific plans to reduce the pace of its purchases of Japanese government bonds as part of the process of normalizing its policy but it is not considered quantitative tightening. Governor Ueda said last month that the main tool remains the overnight rate target.
On Monday, the Dallas Fed's manufacturing activity index is expected to extend its long contraction, at a consensus minus 13.5 in July, which would be an improvement from minus 15.1 in June.
Japanese payrolls are expected to post their 23rd straight rise on year in June as some sectors continued struggling to fill vacancies. The unemployment rate is forecast to be unchanged at 2.6 percent for a fourth straight month after rising to the level in February from a nearly four-year low of 2.4 percent in January. In May, sharp employment gains were seen in the wholesale/retail industry, the hotels, restaurants and bars category and education support providers. By contrast, the manufacturing industry shed workers for the third straight month.
The FOMC announcement will come at 2 p.m. EDT (1800 GMT) on Wednesday, and half an hour later, Fed Chair Jerome Powell will hold a news conference to discuss the rate decision. In his semiannual monetary policy report to the Congress delivered earlier this month, Powell pointed to some modest further progress in inflation data but he also stressed that the Fed must look at both upside and downside risks by saying reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation and reducing policy restraint too late or too little could unduly weaken economic activity and employment.
Given resilient US economic growth, Powell is unlikely to drastically change his risk assessment at this point, unlike his counterpart north of the border. Bank of Canada Governor Tiff Macklem told reporters after the bank conducted a 25-basis point rate cut for the second straight month last week: With the target in sight and more excess supply in the economy, the downside risks are taking on increased weight in our monetary policy deliberations. We need growth to pick up so inflation does not fall too much, even as we work to get inflation down to the 2 percent target.
The Bank of England, on the other hand, is expected to start lowering rates by cutting its policy rate by 25 basis points to 5.0 percent, possibly in a split vote, on Thursday despite sticky services and core inflation and solid economic growth. The announcement of the BoE rate decision and minutes is slated for 7 a.m. EDT (1100 GMT/noon London time). At its previous meeting on June 19, the Monetary Policy Committee decided in a 7 to 2 vote to maintain Bank Rate at 5.25 percent. Two members called for a 25-baisis point cut. At the time, the MPC said monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2 percent target sustainably in the medium term.
The Bank of Japan's policy decision after the July 30-31 meeting is expected to be announced sometime between 1130 and 1230 JST Wednesday (0230-0330 GMT Wednesday/10:30 p.m.-11:30 p.m. EDT Tuesday). The results of its June 13-14 meeting were released shortly after it ended at 1216 JST (0316 GMT/11:16 p.m. EDT). Given the lack of evidence that wage hikes at large firms are spreading to smaller firms (services costs are rising slowly), the BoJ board is widely expected to maintain its policy stance and wait until its next meeting on Sept. 20-21 to follow up on its first rate hike in 17 years in March by raising the overnight interest rate target to 0.25 percent from the current range of zero to 0.1 percent. Governor Kazuo Ueda has said underlying inflation estimated by the bank is moving up but still below its 2 percent target.
On Wednesday, the BoJ will also release specific plans to reduce the pace of its purchases of Japanese government bonds as part of the process of normalizing its policy but it is not considered quantitative tightening. Governor Ueda said last month that the main tool remains the overnight rate target.
On Monday, the Dallas Fed's manufacturing activity index is expected to extend its long contraction, at a consensus minus 13.5 in July, which would be an improvement from minus 15.1 in June.
Japanese payrolls are expected to post their 23rd straight rise on year in June as some sectors continued struggling to fill vacancies. The unemployment rate is forecast to be unchanged at 2.6 percent for a fourth straight month after rising to the level in February from a nearly four-year low of 2.4 percent in January. In May, sharp employment gains were seen in the wholesale/retail industry, the hotels, restaurants and bars category and education support providers. By contrast, the manufacturing industry shed workers for the third straight month.
Definition
Market Focus details key factors in the coming day that will impact the economic outlook and the financial markets. These include central bank events, economic indicators, policymaker speeches as well as expected political and corporate developments.
Description
Keeping up-to-date with event schedules and the economic calendar is key to understanding the global financial system. Econoday's Market Focus allows investors and policymakers to carefully track what will be making news and moving the financial markets in the coming day.
