Fed Is Whetting Appetite for a Half-Point Rate Hike: Eco Week

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(Bloomberg) — In the coming week, investors will analyze the minutes of the Federal Reserve’s March meeting to gauge central bankers’ appetite for a half-cent increase in interest rates next month.

Wednesday’s minutes will provide key details of a possible path forward when the Fed shrinks its balance sheet. Fed Chairman Jerome Powell said the plan would be clearly laid out, indicating that policymakers debated one approach and came down in favor of it.

Last time they shrunk the balance sheet, the Fed allowed holdings to run up to $50 billion a month — $30 billion in treasuries and $20 billion in mortgage-backed securities, in a phased manner over a year — but officials have said that they hope to go faster this time.

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In March, the Federal Open Market Committee raised its benchmark interest rate by only a quarter point against the backdrop of Russia’s war in Ukraine and the sharpest inflation in four decades. Since then, price pressures have only increased, and labor market data showed solid job growth and an uptick in wages.

The US added nearly half a million jobs in March and the unemployment rate fell more than expected, according to government data on Friday. Those figures followed separate data showing a 6.4% jump in the personal spending price index, which the Fed uses for its inflation target.

For more, read the full week of Bloomberg Economics for America

Fed Governor Lyle Brainard will participate in a virtual discussion hosted by the Minneapolis Fed on inflation on Tuesday. It is his first speech in months as he awaits Senate confirmation for the position of Fed vice chair.

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The US economic data calendar is light, with March services activity and February reporting trade deficit.

What Bloomberg Economics says:

“The rapid absorption of the unemployed into the job market could mean that the Fed could raise rates more rapidly to counter inflation without raising unemployment, at least in the near term.”

-Anna Wong, Yelena Shulyataeva, Andrew Husby and Eliza Winger, economists. Click here for full analysis

Elsewhere, the European Central Bank will release the minutes of its last meeting only a week before its next decision. Monetary officials from Poland to Peru may hike rates, and counterparts from India to Australia are expected to withhold the policy.

Click here for what happened last week and our description of what’s happening in the global economy below.

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Investors will be on high alert for further moves in the yen and Japanese bonds after a week-long feud that saw the Bank of Japan repeatedly step into the market to protect its yield caps as it sticks to incentives. goes.

Household spending data on Tuesday will point to weak consumption during the first quarter amid fears of contraction.

A private gauge of service sector activity in China is likely to back up earlier data showing the hit from the Covid lockdown.

The Reserve Bank of Australia is expected to pounce, although some economists are now expecting more rate hikes this year, with the most recent budget outlining pre-election spending plans.

The Reserve Bank of India, which remains on the blame end of the central bank spectrum, is also expected to hold. The Central Bank of Sri Lanka also meets.

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South Korea gives its latest inflation numbers as hearings for Bank of Korea nominee Ri Chang-yong take place ahead of a meeting later in April.

For more, read Bloomberg Economics’ full Coming Week for Asia

Europe, Middle East, Africa

The ECB will release an audit of its own decision in March, a day after Fed minutes, when officials surprised financial markets by intensifying their wind-down of stimulus. Since then, the price shock in the region has intensified, setting a new record inflation of 7.5%.

The report will come as euro-zone policymakers enter a quiet period ahead of their April 14 meeting, meaning investors looking for clues on next steps will only have to wait a week for verification.

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Data due in the euro area will indicate how industrial sectors in Germany and France, its largest economies, were facing global supply logjams, just as war broke out in Ukraine.

Meanwhile, in the UK, investors can focus on policymakers’ comments. Bank of England Governor Andrew Bailey, Deputy Governor John Cunliffe and Chief Economist Who Pill are all to speak.

Poland’s central bank is set to raise interest rates for the seventh time in a row on Wednesday, amid concerns that a rapid tightening could threaten growth. The next day, Hungarian policymakers make a weekly decision ahead of inflation data that could show further growth from a 15-year high.

Kenya’s Treasury Secretary Ukur Yatani will present the current administration’s final budget ahead of the August 9 general elections on Thursday. They are expected to focus on curbing debt and reducing debt-servicing costs in East Africa’s largest economy.

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Turkey’s inflation data is expected to rise further on Monday after reaching 54% in February, driven by a weak lira and rising energy costs. Price hikes, including a 65% annual jump in food prices last month, have eroded support for President Recep Tayyip Erdogan’s government ahead of elections due in 2023.

For more, read the full week of Bloomberg Economics for EMEA

Latin America

Inflation has been doing better than Latin America’s policymakers for almost a year now, and analysts don’t expect March data to change that script.

In Colombia, analysts expected a result of more than 8.4% on Tuesday, representing a five-fold increase within 12 months.

See more about the same in Brazil and Chile, with early forecasts calling for a pickup in the former towards 11% and the latter for a nearly absolute percentage jump from the current 7.8%.

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Conversely, Mexico may be in respite, with March readings just below November’s 20-year high of 7.37%.

And while the headline figures have been eye-catching, core inflation has also risen, indicating that a long, slow process of deflation is in store once prices have indeed peaked.

To this end, the president of Brazil’s central bank, Roberto Campos Neto, sees inflation topping out in April, while Peru’s Julio Velarde has ventured a “mite” for the same month.

Two central banks – Colombia and Mexico – will post minutes of their March meetings, providing insight on potential terminal rates and timelines.

Watch Uruguay’s central bank raise its key rate for a sixth straight meeting, while Peru is on course for a ninth straight hike.

For more, read the full week of Bloomberg Economics for Latin America

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