Powell takes the lead in a series of rate hikes around the world: Eco Week

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(Bloomberg) – Federal Reserve Chairman Jerome Powell all but promised that U.S. officials would raise interest rates by 50 basis points, the largest such adjustment in more than two decades, but it was less clear about the duration of their action. I have to go.

In a week that is expected to see a global string of rate hikes, Fed officials are expected to raise their benchmark on Wednesday and could also announce they will start letting the central bank’s bloated balance sheet begin to contracting at a rate that is rapidly increasing to $95 billion per month.

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Powell could use his post-meeting press conference to cement expectations of another half-point move in June, while providing more clues about what’s to come as officials grapple with the toughest U.S. inflation. high for four decades.

Meanwhile, the other part of the Fed’s mandate – the labor market – remains robust. Friday’s figures are expected to show employers added about 400,000 jobs in April. Unemployment is expected to fall to 3.5%, equaling the lowest since 1969, and average hourly earnings should post another solid advance.

Other key economic data from the United States next week include manufacturing and services surveys for April, as well as the job openings report for March.

Powell supported frontloading policy measures to bring price pressures back to the Fed’s 2% inflation target. But it’s unclear whether he’s prepared to say that means pushing rates this year into restrictive territory, or in other words above the neutral level that neither speeds up nor slows down the economy. Officials see this rate at around 2.5%.

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Other central bankers, including James Bullard, have publicly supported overshooting neutral if price pressures do not ease as expected. The St. Louis Fed chairman backs a rate hike to 3.5% and said a 75 basis point hike should be part of the debate — a position that several of his colleagues have pushed back against.

What Bloomberg Economics says:

“The latest wage data is already prompting markets to consider another 75 basis point tightening in June. We think that would be premature, given early signs that US inflation is peaking… The latest consumer spending report showed a modest deceleration in core PCE inflation, and services spending more at the end of the first quarter will release some pressure on property prices.

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–Anna Wong, Yelena Shulyatyeva, Andrew Husby, Eliza Winger, economists. For a full analysis, click here

Elsewhere, at least a dozen other central banks are due to make policy decisions in the coming week, with multiple rate hikes expected. Their size can vary from the 15 basis points predicted by economists for Australia, to a quarter of a point in the United Kingdom, to full percentage points in Brazil and Poland.

Click here to see what happened last week, and below is our summary of what’s happening in the global economy.

Asia

China’s Purchasing Managers’ Index released on Saturday showed economic activity contracted sharply in April amid Covid-related shutdowns. Industrial production and demand for services have both been affected. Regional reports due in the coming week may again show the ripple effects of supply grunts.

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After inflation accelerated faster than expected, Australia’s central bank may be forced to raise rates amid an election campaign when it meets on Tuesday. It will also inform markets of the plans for the bonds it has accumulated during its nearly two-year quantitative easing program.

Governor Philip Lowe will have the opportunity to expand on his thinking and update his outlook in Friday’s quarterly policy statement.

The widely expected Fed tightening will be closely watched in Asia, with the Hong Kong Monetary Authority expected to react on Thursday as it reflects US policy.

Japan has a three-day holiday, then returns on Friday with price data from Tokyo that may show a slight rise in fuel costs.

For more, read the full Asia Week Ahead from Bloomberg Economics

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Europe, Middle East, Africa

The Bank of England’s decision on Thursday will be the region’s high point, with most economists expecting the key rate to be raised for a fourth consecutive meeting to 1%, the highest level since 2009.

Potential minority votes for an even bigger half-point increase could add color to the outcome, and the possibility of an announcement of asset sales under its quantitative easing program could also spark controversy. interest of investors.

Other central banks will also tighten. Iceland could be first, up at least half a point on Wednesday. The next day, the Czech central bank should carry out a similar operation, while that of Poland should be twice as large.

By contrast, Norwegian officials are likely to keep their rate on hold on Thursday, but signal that a series of planned rate hikes remain on track, with the next scheduled for June.

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Meanwhile, on Friday, Sweden’s Riksbank will release the minutes of its April 28 meeting that culminated in a historic political pivot with a sudden rate hike.

Euroregion data includes unemployment on Tuesday and German industrial production at the end of the week, which will show the impact of supply shortages created by the war in Ukraine.

South African data on Tuesday will likely show that manufacturing sentiment fell for the first time in four months, following the worst flooding in decades in KwaZulu-Natal province, home to the country’s biggest port.

Turkish data on Thursday is expected to show a further acceleration in inflation due to higher food and energy prices, as the central bank continues to implement the unorthodox interest rate policy low favored by President Recep Tayyip Erdogan.

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For more, read Bloomberg Economics’ full week for EMEA

Latin America

In answer to one of Latin America’s biggest questions right now – are we still inflationary? – look for April readings from Peru, Colombia and Chile to offer a firm “no”. The surge in consumer prices seen in all three economies over the past year had shown few signs of abating, even before Russia’s invasion of Ukraine and its dislocation from various commodity markets.

Minutes from Friday’s Colombian central bank meeting, where a third consecutive 100 basis point hike and a sixth straight hike raised the policy rate to 6%, are eagerly awaited, especially after the seemingly dovish decision in March. .

In addition to inflation data, Chile releases its proxy GDP data for March and business confidence surveys. The central bank is expected to extend a record tightening cycle on Thursday with a 100 basis point hike to 8%, with even more on the way.

On Wednesday, Brazil’s central bank is all but certain to raise its policy rate for a 10th straight meeting, the longest tightening cycle since 1999. Most analysts expect a second straight hike of 100 basis points, which would push the rate director at 12.75%.

Also from Brazil, a series of reports – many of which have been delayed for weeks by striking central bank workers – will cover economic activity, the budget, trade, current account, foreign direct investment , loans and industrial production.

For more, read the full Latin America Week Ahead from Bloomberg Economics

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