(Bloomberg) — U.S. inflation figures next week will reinforce that long-awaited interest-rate cuts are coming soon, while a reading on consumer spending suggests the central bank has succeeded in keeping the expansion intact.
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Economists see the personal consumption expenditures price index excluding food and energy — the Fed’s preferred measure of core inflation — rising 0.2% in July for a second month. That would bring the three-month annual rate of so-called core inflation down to 2.1%, just above the central bank’s 2% target.
Economists in a Bloomberg survey also expect consumer spending, not adjusted for price changes, to rise 0.5% — the strongest advance in four months — in Friday’s report.
Speaking at the Jackson Hole Symposium, Federal Reserve Chairman Jerome Powell acknowledged recent progress on inflation, saying he had gained confidence that it was on its way back to 2% and that “it is time to adjust policy.”
Friday’s comment marked a major turning point in the Fed’s two-year battle against price pressures and underscored how the focus has shifted toward risks in the labor market — the other part of the central bank’s dual mandate. Job growth has helped sustain consumer spending, which is key to ensuring the economy expands.
The government is due to release its first review of second-quarter gross domestic product on Thursday. Economists’ median forecast calls for annual growth of 2.8%, unchanged from the previous reading.
Other U.S. data due next week includes durable goods orders for July on Monday and separate consumer confidence indicators on Tuesday and Friday.
San Francisco Fed President Mary Daly, a voting member of the FOMC in 2024, will appear on Bloomberg TV on Monday. Another voter, Atlanta Fed President Raphael Bostic, will speak about the economic outlook on Wednesday.
What Bloomberg Economics says:
“Powell’s very dovish speech at Jackson Hole was music to the ears of market players. He pledged that the Fed would do “everything it can” to support a strong labor market and provide a floor for the economy. We think a little reality check is in order.”
– Anna Wong, Stuart Paul, Eliza Winger, Estelle O. For the full analysis, click here.
Further north, Canada’s second-quarter GDP data will be the last major economic release before the central bank cuts interest rates for a third straight meeting in September. 4.
Preliminary data pointed to quarterly growth of 2.2% — above the central bank’s forecast of 1.5% — bolstering its efforts to engineer a soft landing while continuing to lower borrowing costs.
Investors will also be watching the latest developments in the resolution of a Canadian rail dispute that has disrupted supply chains in North America.
Elsewhere, the eurozone will release inflation data for August less than two weeks before the European Central Bank makes its next policy decision, while China’s central bank will set its one-year policy lending rate. Rate decisions include Hungary and Israel.
Click here to see what happened last week, and here’s a summary of what’s coming in the global economy.
Asia
The week begins with renewed focus on China’s new monetary framework, with the People’s Bank of China setting the one-year policy lending rate. After a surprise cut in July, authorities are expected to keep the rate steady at 2.3%.
Monday’s decision comes after the People’s Bank of China signaled this month that it was de-emphasizing the role of the medium-term lending facility as a policy tool, while raising the seven-day reverse repo rate to greater prominence.
A day later, China will get industrial profit figures that could spur calls for more policy steps to boost the economy, with Beijing due to release official purchasing managers’ index numbers on Saturday.
Elsewhere, prices will be the issue.
Australia’s July average inflation gauge will give the central bank fresh clues as it considers whether to maintain its hawkish tone.
Japan also gets an update on consumer price inflation in the capital, a key indicator of national trends. Data due Friday could show India’s annual economic growth slowed slightly in the second quarter, and trade figures from Thailand, Sri Lanka and Hong Kong are due in the week. Kazakhstan’s central bank meets on Thursday to decide whether to cut its key interest rate for a third straight meeting.
Europe, Middle East, Africa
Inflation data will also be in focus for Europe, with August figures due from the region’s major economies – Germany, France, Italy and Spain – alongside readings for the 20-nation eurozone as a whole.
The bloc is expected to slow from 2.6% in July, paving the way for the European Central Bank to cut interest rates for the second time this cycle when it meets in September.
The outlook is reinforced by the continent’s economic malaise. Although the August PMI got an unexpected boost from the Paris Olympics, underlying weakness is likely to persist beyond this temporary uptick. The start of the week will see updates on output and sentiment in Germany – the region’s current weak spot.
Speakers likely to comment on monetary policy and recent shifts in the economy include ECB Governing Council members Joachim Nagel and Klaas Knot, as well as Executive Board member Isabel Schnabel.
In Eastern Europe, Hungary is expected to keep interest rates unchanged at 6.75%. It’s a similar story in the Middle East, where Israel’s central bank is expected to keep benchmark borrowing costs at 4.5%.
In Africa, August inflation readings from Kenya and Uganda will be released, along with second-quarter GDP figures from Nigeria.
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Brazil’s central bank publishes its weekly survey of economists on Monday. Bank President Roberto Campos Neto said this month that inflation expectations were unstable and that officials were ready to tighten monetary policy if needed.
Mid-month inflation data for Brazil on Tuesday could show a slight dip from July’s 4.45%, but still well above the 3% target. Analysts are setting their interest rate forecasts while traders are pricing in a hike as soon as next month.
The fiscal slide has put Brazil’s budget data — July figures are due out next week — in the spotlight. Economists surveyed by the central bank see no annual nominal or primary budget surpluses until the forecast horizon of 2027.
The main event in Mexico will be the central bank’s quarterly inflation report. New forecasts are unlikely to come so soon after the revisions made to the bank’s August report. The post-decision statement is due on Jan. 8, but policymakers may revise their GDP estimates.
Chile’s retail sales figures for June are likely to show a seventh straight positive print on an annual basis after nearly two years of declines.
-With the assistance of Robert Jameson, Laura Dillon Kane, Zoe Schneeweiss, Paul Richardson, and Brian Fowler.
(Updates with Fed spokespeople in paragraph 8.)
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