Powell is approaching a recall in Stimulus: Eco Week

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US Federal Reserve Chairman Jerome Powell faces a communications challenge in the coming week as he attempts to cut incentives while trying to stave off speculation that such a shift predicts future rate hikes.

Fed officials are expected to signal in their policy statement on Wednesday at 2 p.m. Washington time a start on reducing monthly bond purchases, the most important of at least 15 global central bank decisions due. Economists interviewed by Bloomberg expect this notice to be followed by a formal announcement in November.

Powell will try to convince Americans that such a stance won’t start the clock for rate hikes, while explaining new Fed projections, with some of his colleagues predicting a start in 2022. He will also ask questions from reporters about the recent embarrassing stock trading in 2020 revelations involving two regional Fed presidents.

That difficult to-do list for Powell is made even more difficult by the awareness that President Joe Biden is weighing whether to reappoint the Fed chairman for another four years. A decision is expected this fall, and although Bloomberg News reported that White House advisors are considering keeping Powell at the helm, the deal has not yet been finalized.

The Fed’s decision shows how difficult it is for global central banks to determine whether economic growth is strong enough to turn back support from the pandemic era and whether inflationary pressures are strong enough to even warrant tightening.

Officials in Brazil are likely to do so on Wednesday and Norway on Thursday, with interest rate hikes planned for both countries. In contrast, central banks in Japan, Switzerland and the United Kingdom are among those who may leave their monetary policy positions largely unchanged.

What Bloomberg Economics says:

“The September statement will likely be the first time since the pandemic began that the FOMC has spoken about plans to reduce asset purchases this year.”

–Anna Wong, Andrew Husby, and Eliza Winger. For a full analysis, click here.

Elsewhere, the OECD will publish updated world economic forecasts in Paris on Tuesday.

The elections next week will determine the leadership and economic direction of two countries in the Group of Seven. Canada go first on Monday, with Prime Minister Justin Trudeau slightly ahead of his conservative challenger. Germany’s general election will take place on September 26th and will end for 16 years with Angela Merkel at the helm.

Click here to see what happened last week and below is our round-up of developments in the world economy.

Asia

The Bank of Japan is expected to release more details on its green loan program during a shortened vacation week. The central bank is widely expected to leave its main policy positions unchanged. Rivals vying for Japan’s next prime minister will continue to reveal details of their political plans ahead of the ruling party’s elections on September 29.

In Australia, a speech by the Reserve Bank of Australia’s Deputy Governor Michele Bullock will shed more light on financial system concerns amid the pandemic. The minutes of the bank’s last meeting could provide more details on the debate on the reduction plans in the face of lengthy lockdowns.

Early export figures from South Korea reflect the current pulse of world trade. Japan’s Friday inflation data could turn positive for the first time since March 2020. Pakistan, Indonesia, the Philippines, and Taiwan all have interest rate decisions.

China will be on vacation earlier this week for the mid-fall festival, with spending behavior subject to review for a consumer health check after disappointing retail sales in August. China will set its key lending rate on Wednesday, with economists expecting no change.

For more information, see Bloomberg Economics’ full week for Asia

Europe, Middle East, Africa

Norway is in the spotlight this week amid several monetary policy decisions from across the region, with Norges Bank widely expected to become the first of the group of 10 jurisdictions with the world’s most heavily traded currencies to hike rates since the pandemic began.

Amid slowing growth and rising inflation, Bank of England officials are likely to leave their stance unchanged on Thursday in a decision that includes the novelty of two new members of the Monetary Policy Committee. Michael Saunders has likely repeated his vote to cut bond purchases.

As with the Fed, the Swedish Riksbank could signal plans to reduce crisis incentives, while the Hungarian central bank will reveal whether policymakers want to slow down one of the most aggressive monetary tightening cycles in the European Union.

The Swiss National Bank is likely to leave the world’s lowest interest rate at -0.75% unchanged as it continues to lament the rhetoric about the strength of the Swiss franc. The monetary authorities in Turkey are also likely to opt for an unchanged stance and leave their one-week repo rate at 19%.

In South Africa, data on Wednesday should show inflation accelerating to 4.8% in August, while staying within the central bank’s target range of 3% to 6%.

This will allow the members of the Monetary Policy Committee, who meet the next day, to keep the benchmark rate at a record low and support an economy that contracted in the third quarter after deadly unrest and a cyberattack on state ports and railroad companies.

For more information, see the full Bloomberg Economics week for the EMEA region

Latin America

Argentina on Tuesday reported second quarter production, the last of the region’s six major economies to do so. A pandemic resurgence undermined activity in April and May, suggesting a negative quarterly figure.

Four straight rate hikes – including a full one point hike on August 4 – a total of 325 basis points have brought the Brazilian central bank no closer to inflation than it did at the start of the rate hike cycle in March.

After central bank governor Roberto Campos Neto apparently churned out speculation about a more aggressive tightening, expectations are tending towards a second consecutive 100 basis point hike on Wednesday, which would put the key rate at 6.25%.

On Thursday, Mexico released its final inflation data ahead of the September 30th Banxico meeting. Liquefied gas price caps have pushed consumer prices down, although headline numbers remain well above target.

Argentina’s second quarter unemployment report should also hit a double-digit in six even numbers on Thursday. On Friday, Mexico reported July retail sales data that could show growth slowed in the second half of the year.

At the end of the week, expect the Brazilian benchmark inflation index to rise slightly to just under 10% in mid-September, more than 600 basis points above target.

For more information, see Bloomberg Economics’ full Latin America Week

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