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

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

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Three days of central bank decisions are expected to raise interest rates by more than 500 basis points combined, with the potential for more output if officials opt for more aggression.

The start of the attack will be Sweden’s Riksbank on Tuesday, with policymakers expecting economists to accelerate tightening with a move of 75 basis points.

It’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 beat estimates, some investors even bet on a whopping 100 basis point increase.

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

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

The next day, Bank of Japan officials are likely to continue with an unchanged position, although they are worried about the weakness of the yen. Then their Turkish peers are likely to 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 by the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, as well as an update on key lending rates from the PBOC.

–Tom Orlick, Chief Economist. For a full review click here

Elsewhere next week, 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 overview of what’s to come in the global economy.

US economy

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

Reports on August housing starts and previous home sales are scheduled for release on Tuesday and Wednesday, respectively. The average 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 intervention in 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 loan program to support Covid, which could open the way to adjusting future guidance.

Thursday will feature a marathon of central banks in Asia, with Indonesia, the Philippines and Taiwan setting policy and Hong Kong’s Monetary Authority reacting to the Fed’s one-day move.

Down below, the Reserve Bank of Australia’s Jonathan Kearns will speak on Monday about interest rates and property prices, while RBA Deputy Governor Michelle 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. South Korea’s early trade data on Wednesday will continue to provide insight into the pace of the global economy’s slowdown. And Singapore released inflation data on Friday.

Europe, Middle East, Africa

Although the UK will take Monday as a national holiday for Queen Elizabeth II’s funeral, monetary policy business will resume on Thursday with a decision 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’s efforts to contain the cost-of-living crisis and the pound’s fall to its lowest level since 1985. Economists forecast at least a half-increase on interest rates as officials face inflation that remains uncomfortably high.

The next day, new Finance Minister Kwasi Kwarteng will present a “fiscal event” where he is expected to confirm plans to reverse the recent increase in national insurance – payroll tax – and set out more details of the Truss support package.

The SNB may raise interest rates by 0.75 percentage points at its quarterly decision on Thursday, an aggressive move to match the increase in the eurozone, although inflation in Switzerland is much lower than in the rest of Europe. Norway’s central bank is also likely to hike half an hour later, maintaining an accelerated pace after core consumer prices clearly beat its forecasts.

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

In the eurozone, remarks by European Central Bank Vice President Luis de Guindos and Bundesbank Chief Joachim Nagel may focus investors, along with the first round of September purchasing managers’ surveys due on Friday.

Looking south, data from Ghana on Tuesday is likely to show economic growth slowing to 3% in the second quarter due to rising interest rates and a falling cedi, pushing already rising prices further higher.

Meanwhile, a report in South Africa on Wednesday is due to reveal that inflation eased in August after petrol prices fell, although the rate is still expected to remain above the central bank’s 6% ceiling.

Concerns about further weakening of the rand and the reversal of price expectations will be the focus of the SARB’s Monetary Policy Committee on Thursday. Forward rate agreements starting in one month – used to speculate on borrowing costs – are fully pricing in a 75 basis point increase, with odds of a bigger move of 100 basis points at 82%.

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

Egypt is likely to raise interest rates on the same day as inflationary pressures rise and the pound continues its gradual decline.

Latin America

The Brazilian central bank’s prized survey of economists leads the week with an eye on 2023 and beyond. Later on Monday, Colombia reported economic activity in July, likely showing some cooling from May and June.

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

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

Expect Mexico’s monthly average consumer price reading to rise ever so slightly from 8.77%, suggesting that the peak inflation forecast by Banxico for the third quarter may have occurred.

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

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