The Federal Reserve is expected to keep rates at 3.50-3.75% on Wednesday, with markets assigning a 30-35% chance of a hike. Nine of the 18 participants in the June projections expected at least one rate rise this year, leaving new Chair Kevin Warsh with scope for 2-4 dissents. The Bank of England and Bank of Japan also announce next week.
The Fed is expected to leave rates unchanged at 3.50-3.75% on Wednesday, with markets assigning a 30-35% chance of a hike. For new Chair Kevin Warsh, the most likely outcome may therefore be a hawkish hold.
Even so, the Committee is unlikely to sound relaxed. Underlying inflation remains well above target and the pressure extends beyond energy, with higher memory chip costs beginning to feed through to consumer goods. A softer than expected June CPI report, weaker nonfarm payrolls and a BEA methodology change nonetheless give officials room to wait.
Nine of 18 officials expected a rate rise this year
In the June projections, nine of the 18 participants who submitted forecasts expected at least one rate rise this year. Governors Waller and Cook have since indicated they would consider tightening if disinflation stalls, while Fed Presidents Logan, Hammack and Kashkari have also appeared open to moving sooner.
That leaves scope for 2-4 possible dissents. Warsh has already shortened the Fed’s policy statement considerably, so even minor wording changes will be closely scrutinised. Given his distaste for forward guidance, he is unlikely to offer a clear signal at the press conference.
BoE and BoJ expected to stay on hold
A hold also remains the base case at the Bank of England on Thursday, though a rate hike cannot be ruled out as energy prices continue to climb. The vote split may be more hawkish than the 7-2 seen last time, with Mann the most likely contender to also vote for a rise. Markets price two 25bps moves this year, in November and December.
Money markets meanwhile price around a 96% probability the Bank of Japan keeps rates at 1.00%, the highest level in 31 years. That level followed a 25bps hike on a 7-1 vote at the June 15th-16th meeting, with board member Asada dissenting.
Inflation and growth data follow on Thursday
Analysts expect core PCE to rise 0.17-0.19% M/M, which would leave the annual rate at 3.3% Y/Y, down by one-tenth. Headline PCE is expected to slow to 3.7% Y/Y from 4.1%, marking the first easing since the start of the US-Iran conflict.
Growth is decelerating alongside it. The Atlanta Fed GDPnow tracker is currently modelling growth of 1.7% in Q2, down from Q1’s 2.1% pace. Analysts at Oxford Economics say net trade will subtract more than 2ppts from headline growth, driven by surging capital goods imports tied to AI infrastructure spending.
Source: investingLive
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