During the Jackson Hole Symposium on Friday, Federal Reserve Chair Jerome Powell reaffirmed the Fed’s commitment to achieving the 2% inflation target. He highlighted that if economic conditions demand it, further interest rate hikes may be appropriate.
Powell also underscored that a period of economic growth below the typical trend will likely be necessary to steer inflation back to the desired target. In emphasizing the ongoing uncertainty, Powell stressed that the Fed’s decisions will remain dependent upon incoming data. Currently, some analysts believe that the Fed may opt to hold rates unchanged at the next meeting, but if there is no indication of an economic slowdown and inflation remains high in the future, an additional rate hike might be on the table until the end of the year.
The upcoming week will have several noteworthy events to watch for:
In Australia, RBA Gov-Designate Bullock will deliver a speech on Tuesday at the Sir Leslie Melville Lecture at the Australian National University in Canberra, with questions from the audience being expected. Usually this type of event is not supposed to create volatility in the market, but it’s worth watching it in case Bullock mentions something about future rate hikes.
Meanwhile, in the United States, attention will be on the release of the CB Consumer Confidence data and the JOLTS Job Openings figures.
Wednesday brings key inflation data for Australia, as well as inflation figures for the eurozone. In the U.S., focus will be on the ADP Non-Farm Employment Change, Preliminary GDP q/q and the Preliminary GDP Price Index q/q.
The United States takes center stage again on Thursday with the release of Core PCE data, Personal Income m/m, Personal Spending m/m and the Unemployment Claims.
As the week concludes, Switzerland will share its CPI data, while Canada will unveil figures for GDP and Manufacturing PMI. In the United States, attention will turn to Average Hourly Earnings m/m, Non-Farm Employment Change, the Unemployment Rate, the final Manufacturing PMI, ISM Manufacturing PMI, ISM Manufacturing Prices, and Construction Spending m/m.
In the U.S., the CB Consumer Confidence is likely to drop modestly from 117.0 to 116.2 while the JOLTS Job Openings are likely to rise from 9.58M to 9.70M.
In Australia, it is expected that the Consumer Price Index (CPI) data will indicate a slight cooling trend, likely moving from 5.4% to 5.2%. The RBA maintains a data-dependent approach and will closely monitor the future trajectory of inflation. The RBA Governor has emphasized the importance of returning inflation to target within a reasonable timeframe. While the possibility of further interest rate hikes has not been ruled out, the market anticipates that the Bank will opt to keep interest rates unchanged at the next meeting.
In the eurozone, the focal point of the week will be the release of inflation data, a key event to monitor. While there are indications of a general cooling in inflation, the core inflation figure remains notably elevated, standing at 5.5%. Analysts at ING suggest that this core figure could be further influenced “by the effects of government subsidies.” Anticipation is high to see if there are any signs of relief. Its implications will be influential in shaping the ECB’s decision at the upcoming monetary policy meeting.
In the U.S. the consensus for the ADP Non-Farm Employment is for a drop from 324K to 201K. In terms of economic growth the GDP is likely to print above expectations at around 3%, but this trend is not expected to continue in the near future.
To gauge the possibility of a Federal Reserve rate hike until the end of the year, the key data to watch includes personal income and spending figures, along with labor market data. For now, at the next meeting in September, the Fed is expected to keep the rate unchanged.
The general consensus suggests that the unemployment rate is expected to hold steady at 3.5%, indicating stability in the labor market.
Concerning the headline PCE, there’s an anticipation of a 0.2% increase in the m/m data. Similarly, for the Core PCE, the expectations are for a 0.2% rise. Collectively, this data is likely to signal a continuing disinflationary trend.
Regarding personal spending and income data, expectations suggest that consumers may increasingly rely on credit and gradually deplete their savings to support their lifestyle spending habits.
The consensus regarding inflation data in Switzerland stands at 1.7%. In the previous month, inflation figures aligned with expectations and remained below the SNB’s target range. Nevertheless, should this week’s data indicate a significant increase, it could be viewed as a source of concern by the central bank. As of now, market expectations lean towards the SNB maintaining its current interest rates during the upcoming meeting.
In the U.S., analysts anticipate the non-farm employment change to decline, moving from 187K to 169K. The unemployment rate is expected to hold steady at 3.5%. As for the m/m average hourly earnings, there is a projected increase of 0.3%, down from the previous month’s 0.4%, implying a slight moderation in earnings growth.
There is an expectation for a slight uptick in the U.S. ISM Manufacturing PMI, moving from 46.4 to 46.9. The manufacturing sector has faced challenges stemming from elevated interest rates, which have affected it more strongly compared to other sectors of the economy.
Nonetheless, the broader economy continues to exhibit resilience, suggesting a recession could be avoided. However, sustained high interest rates could potentially reveal vulnerabilities over time. Despite the manufacturing sector’s challenges, new orders have increased in response to improvements in production.
This article was written by Gina Constantin.