Investors will be analyzing March Federal Reserve meeting minutes next week to gauge central bankers’ appetite for a half a percentage point hike in interest rates next month.
Wednesday’s minutes will provide key details on the likely further path to shrinking the Fed’s balance sheet. Fed Chair Jerome Powell said the plan is set out fairly clearly, suggesting that policymakers have debated and settled on one approach.
The last time it trimmed the balance sheet, the Fed set caps that allowed holdings to be reduced to $50 billion a month — $30 billion in Treasuries and $20 billion in mortgage-backed securities that were phased in over a year – but officials said they expect to be quicker this time.
Bloomberg
In March, the Federal Open Market Committee raised its benchmark interest rate by just a quarter point amid the Russian war in Ukraine and the fastest inflation in four decades. Since then, price pressures have only increased and labor market data shows solid job growth and an acceleration in wages.
The US added nearly half a million jobs in March and the unemployment rate fell more-than-expected, according to government data Friday. Those numbers followed separate data that showed a 6.4% rise in the personal spending price index, which the Fed uses for its inflation target.
Fed Governor Lael Brainard will participate in a virtual discussion on inflation hosted by the Fed in Minneapolis on Tuesday. It’s her first speech in months as she awaits Senate confirmation for the Fed Vice Chair position.
The US economic data calendar is light with reports on March services activity and February trade deficit.
“The rapid absorption of the unemployed into the labor market could mean the Fed can hike rates steeply to fight inflation without raising unemployment, at least in the short term.”
Elsewhere, the European Central Bank will release the minutes of its latest meeting just a week before its next decision. Currency officials from Poland to Peru could hike rates and from India to Australia are expected to put policy on hold.
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Asia
Investors will be watching for further moves in the yen and Japanese bonds after a week-long scramble that saw the Bank of Japan repeatedly enter the market to defend its yield cap while holding on to stimulus.
Tuesday’s Household Spending data is likely to point to weak consumption mid-Q1 amid fears of a contraction.
A private measure of service sector activity in China is likely to back up previous data showing a hit from Covid lockdowns.
The Reserve Bank of Australia is not expected to ease, although some economists are now expecting further rate hikes this year after pre-election spending plans outlined in the latest budget.
The Reserve Bank of India, which remains at the dovish end of the central bank spectrum, is also likely to hold. The Central Bank of Sri Lanka also meets.
South Korea releases its latest inflation figures amid hearings for Bank of Korea nominee Rhee Chang-yong ahead of a meeting in late April.
Europe, Middle East, Africa
A day after the Fed minutes, the ECB is set to release a report on its own decision in March, when officials surprised financial markets by speeding up their stimulus winding-up. Since then, the price shock in the region has intensified, leading to a new inflation record of 7.5%.
The report will arrive just as euro-zone policymakers enter a quiet period ahead of their April 14 meeting, meaning investors looking for clues about the next move have just a week to wait for confirmation.
Data due in the euro zone will signal how industrial sectors in Germany and France, its largest economies, weathered global supply lockdowns as war in Ukraine tipped to erupt.
In the UK, meanwhile, investors could focus on policymakers’ comments. Andrew Bailey, Governor of the Bank of England, Jon Cunliffe, Lieutenant Governor, and Huw Pill, Chief Economist, will all speak.
Poland’s central bank is poised for its seventh straight rate hike on Wednesday amid fears the rapid tightening could jeopardize growth. The next day, Hungarian policymakers make a weekly decision ahead of inflation data that could indicate a further rise from a 15-year high.
Kenya’s Finance Minister Ukur Yatani will on Thursday present the current government’s final budget ahead of August 9 general elections. His focus is expected to be on curbing debt and reducing the cost of borrowing in East Africa’s largest economy.
Turkey’s inflation data is expected to show further acceleration on Monday after hitting 54% in February, driven by a weaker lira and rising energy costs. The price surge, including a 65% annual rise in food prices over the past month, has hurt support for President Recep Tayyip Erdogan’s government ahead of the 2023 elections.
Latin America
Inflation has gripped Latin American policymakers for almost a year now, and analysts don’t expect the March data to change that scenario.
In Colombia, analysts are expecting a return of over 8.4% on Tuesday, a five-fold increase in 12 months.
Look for more of the same in Brazil and Chile, with early forecasts for the former rising towards 11% and the latter jumping about a full percentage point from the current 7.8%.
In contrast, Mexico may get some respite as the March reading is just below November’s 20-year high of 7.37%.
And while the headlines have been eye-catching, core inflation has also risen sharply, suggesting a long, slow process of disinflation lies ahead once prices have indeed peaked.
In addition, the President of the Brazilian Central Bank, Roberto Campos Neto, sees that inflation will peak in April, while the Peruvian Julio Velarde has dared a “possible” for the same month.
Two central banks – Colombia and Mexico – are set to release the minutes of their March meetings, which are likely to provide insight into possible final interest rates and timelines.
Note that Uruguay’s central bank is raising interest rates for the sixth straight month, while Peru is almost certain to hike for a ninth straight year.
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