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Fed Leads 500-Basis Point Global Assault on Inflation: Eco Week

Fed Leads 500-Basis Point Global Assault on Inflation: Eco Week

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

Bloomberg’s most read

The three days of central bank decisions are expected to raise interest rates by more than 500 basis points in total, which could increase the winning amount if authorities choose to be more aggressive.

The attack will begin on Tuesday by the Swedish central bank, and economists expect the decision-makers to accelerate tightening with a 75 basis point move.

This is just a prelude to the main event, when US officials are expected to raise borrowing costs by the same amount on Wednesday to keep upward pressure on inflation. After another CPI report that beat forecasts, some investors have even bet on a 100 basis point increase.

Thursday will see the most extensive action. The central banks of the Philippines, Indonesia and Taiwan are expected to raise key interest rates. The focus then shifts to Europe, with the Swiss National Bank, Norges Bank and Bank of England forecast to rise by half a point or more. Further south, South Africa’s central bank continues its efforts with a move of 75 basis points, and Egypt may also act.

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

The next day, Bank of Japan officials are likely to remain unchanged, although they are concerned about a weaker yen. Then their Turkish counterparts are likely to continue their unusual approach of keeping interest rates low despite over 80 percent inflation.

What Bloomberg Economics Says…

“In a busy week for monetary policy, we expect the Fed to increase by 75 basis points and the Bank of England by 50 basis points. Next week’s calendar also includes the decisions of the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, as well as an update on prime loan rates from the PBOC.

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

Elsewhere in the coming week, US housing data, the new UK government’s financial announcement and Japan’s inflation data will also attract investors’ attention.

Click here to see what happened last week and below is a recap of what’s going on in the global economy.

US economy

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

Reports on August home starts and previously owned home sales will be released on Tuesday and Wednesday. The median forecast for purchases of existing properties calls for a seventh consecutive month of decline.

Weekly jobless claims and S&P Global’s manufacturing and services surveys for September 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 foreign exchange markets as the yen tests $145.

Governor Haruhiko Kuroda is expected to hold firm on policy unchanged, although he is likely to end his Covid bailout program, which could pave the way for adjusting future guidance.

Thursday will see an Asian central bank marathon, with Indonesia, the Philippines and Taiwan setting policy and Hong Kong’s monetary authority reacting to the Fed’s overnight move.

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

On the data front, Japan’s national inflation data released on Tuesday is expected to continue to rise. South Korea’s early trade data on Wednesday continues to give a sense of the global economic slowdown. Singapore released inflation data on Friday.

Europe, Middle East, Africa

Britain will observe Monday as a national holiday for the Funeral of Queen Elizabeth II, but monetary policy will continue as usual on Thursday with the decision postponed for a week due to mourning.

The BOE meeting is the first opportunity for authorities to respond to the changed outlook created by new Prime Minister Liz Truss’ efforts to curb the cost-of-living crisis, and the pound falling to its lowest level since 1985. Economists are predicting a rate hike of at least half a basis point as authorities face inflation that remains uncomfortably high.

The next day, new Finance Minister Kwasi Kwarteng will hold a “fiscal event” where he is expected to confirm his plans to reverse the recent increase in National Insurance – payroll tax – and give more details on the Truss support package.

The SNB may raise rates by 0.75 percentage points at its quarterly decision on Thursday, an aggressive move to match 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 also likely to raise half an hour later, continuing at an accelerating pace after core consumer prices well exceeded its forecasts.

Earlier this week, investors will focus on the expected interest rate hike by the Swedish central bank on how much policymakers intend to speed up future tightening plans, amid increasing evidence that the Nordics’ largest economy is on its way to a recession in 2023.

In the Eurozone, speeches by European Central Bank Vice President Luis de Guindos and Bundesbank President Joachim Nagel may focus on investors, as well as September’s first round of purchasing managers’ surveys due on Friday.

Looking south, Tuesday’s data from Ghana is likely to show economic growth slowed to 3 percent in the second quarter due to rising interest rates and the collapse of the cedi, which has already caused prices to rise further.

A report in South Africa on Wednesday is set to reveal that inflation eased in August after lower petrol costs, although interest rates are still expected to remain above the central bank’s six per cent ceiling.

On Thursday, the SARB’s monetary policy committee will focus on concerns about the weakening of the rand and the anchoring of price expectations. One-month forwards, which are used to speculate on borrowing costs, are fully priced for a 75 basis point increase, with an 82% chance of a 100 basis point increase.

Turkey on Thursday is likely to leave interest rates on hold after a shock cut in August, although a slowing economy and the approach of next year’s elections 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’s gradual decline continues.

Latin America

Brazil’s central bank’s prestigious survey of economists leads the week with an eye firmly on 2023 and beyond. Later on Monday, Colombia will report July economic growth, which is likely to show some cooling in May and June.

Next, Argentina’s second-quarter production figures may look surprisingly strong given the political and market turmoil plaguing South America’s second-largest economy.

Chile’s highlight is the minutes from the central bank’s Sept. 6 meeting, where policymakers stepped up tightening with a larger-than-expected 100 basis point hike to raise the key interest rate to a record 10.75 percent.

See Mexico’s mid-month CPI readings rise ever so slightly from 8.77%, suggesting Banxico’s third-quarter inflation peak may have arrived.

Brazil’s central bank is widely expected to keep its key rate unchanged at 13.75% after a record 12 consecutive hikes from 2% in March 2021. Investors see a less than 50% chance of another hike in the coming months, and it is possible that Brazil – among the first to begin tightening globally in March 2021 – is also among the first to decide.

Bloomberg Businessweek’s most read

©2022 Bloomberg LP

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