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The Fed's preferred measure of inflation is set to support patience with interest rate cuts

The Fed's preferred measure of inflation is set to support patience with interest rate cuts

(Bloomberg) — Federal Reserve officials are about to get more confirmation that progress against inflation has stalled, supporting what appears to be a shift in tone on keeping interest rates higher for longer than previously expected.

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Policymakers' preferred measure of inflation – the personal consumption expenditures price index – is likely to remain elevated in March, according to data scheduled for release next week.

This indicator is expected to accelerate slightly to 2.6% year-on-year as energy costs rise. The core measure, which excludes energy and food, is expected to rise 0.3% from the previous month after similar gains in February.

While core personal consumption expenditures data may not be as strong as the CPI — which beat estimates and rattled markets earlier this month — Federal Reserve Chair Jerome Powell and other officials have indicated it will take longer for them to gain the necessary confidence in the economy. . The downward path of inflation before interest rate cuts.

Read more: Fed resets clock on cuts and questions if rates are high enough

Policymakers are scheduled to observe a traditional public speaking blackout over the next week, before their two-day meeting that concludes on May 1.

Friday's new inflation figures will be accompanied by personal spending and income figures for March. On the back of healthy job growth, economists expect another strong gain in household expenditures on goods and services. Income growth is also expected to accelerate.

Other data this week includes the government's preliminary estimate of growth in the first quarter, which may have slowed from the strong pace in the previous period but is still above what policymakers consider sustainable in the long term.

A composite measure of activity from manufacturers and service providers, as well as new home sales, will also be released. Later in the week, the University of Michigan will publish its final April reading of consumer confidence and inflation expectations.

What Bloomberg Economics says:

“Real GDP is likely to decline to around 2.7% in the first quarter after average growth of 4.2% in the second half of 2023. This is still above the long-term sustainable pace of 1.8%, according to the committee’s forecasts.” Federal Reserve opened the market, signaling continued inflationary pressures. Looking ahead, activity will be challenged by weak discretionary spending as consumers become more price sensitive amid rising inflation.

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—Anna Wong, Stuart Ball, Elisa Wenger, and Estelle Au, economists. For the full analysis, click here

Looking north, a summary of the Bank of Canada's deliberations will shed more light on the debate among officials about what they want to see before cutting interest rates. February retail sales and preliminary estimate for March may confirm signs of slowing consumption at the beginning of the year.

Elsewhere, the Bank of Japan's decision will be scrutinized for hints of future rate hikes, Turkish officials may keep borrowing costs on hold, Germany's Ifo business index may point to improvement, and countries from Australia to Mexico are set to report inflation figures.

Click here to see what happened last week. Below is a summary of what will happen in the global economy.

Asia

The Bank of Japan will provide its latest price forecasts, just over a month after its first interest rate hike since 2007.

With the Bank of Japan widely expected to keep policy unchanged after freezing its massive easing program, economists and investors will be examining the outlook and the Bank of Japan's characterization of inflation risks for any hints about the pace of future rate hikes.

Continued weakness in the yen will add an extra layer of tension when Governor Kazuo Ueda speaks at a press conference after Friday's decision.

The week begins with Chinese banks expected to keep key interest rates unchanged.

Preliminary export figures from South Korea will provide a snapshot of the strength of global trade. The trade-reliant country will release GDP figures on Thursday, with the economy expected to grow at the same pace as the previous four quarters.

The Indonesian central bank is likely to keep borrowing costs unchanged at 6%.

Singapore, Australia and Malaysia release inflation figures during the week, with monthly figures from Down Under expected to show the first acceleration since September.

Australia will cut growth forecasts for most major economies, including major trading partner China, when it publishes its budget next month, Treasurer Jim Chalmers said on Sunday.

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Europe, Middle East, Africa

European Central Bank President Christine Lagarde will speak Monday at Yale University as she extends her visit to the United States following the IMF and World Bank meetings.

Back in Europe, several colleagues are scheduled to speak in the coming days. These include ECB Executive Board members Isabel Schnabel and Piero Cipollone, and governors including Joachim Nagel, François Villeroy de Galhau and Fabio Panetta.

Key releases from the euro zone include consumer confidence on Monday, preliminary results from monthly purchasing managers' surveys on Tuesday, and the European Central Bank's consumer expectations survey on Friday.

Among major economies, Germany's Ifo business confidence index on Wednesday will serve as a highlight as policymakers note a turn for the better in Europe's largest economy after a period of stagnation and deflation.

Tuesday is set to be a busy day in the UK. PMI figures will be released alongside Eurozone figures, with the latest fiscal data due at that time as well. Bank of England chief economist Hugh Bell and fellow policymaker Jonathan Haskell are scheduled to speak on the day.

The Swiss National Bank will hold its annual general meeting on Friday, one day after announcing earnings. The event has attracted climate activists in the past, and this time they could be motivated by a parliamentary vote upholding the central bank's position not to take environmental risks into account in its monetary policy.

South Africa's central bank will on Tuesday publish its semi-annual review of monetary policy, providing guidance on inflation expectations and interest rates.

Several monetary decisions are scheduled to be made across the wider region:

  • On Tuesday, Hungary is bracing for more slow cuts to the EU's top interest rate as officials face multiple risks as they try to protect the volatile forint.

  • Two days later, the Ukrainian Central Bank will set policy following a slowdown in inflation.

  • Also on Thursday, Turkish officials may keep the key interest rate at 50% after its surprise hike last month. Some analysts do not rule out another increase if policymakers see inflation expectations deteriorating from the peak they see at around 75% in the coming months.

  • On Friday, Russia's central bank is set to keep interest rates at 16% after officials signaled a “prolonged period” of tight monetary conditions this year amid continued high inflation and a deterioration in foreign trade due to sanctions.

  • On the same day, Botswana is expected to keep borrowing costs unchanged, with inflation below the target range of 3% to 6%.

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latin america

In Mexico, early April inflation data is likely to reinforce speculation that the central bank will pause at its May meeting, with analysts expecting the mid-month reading to rise again by more than 4.5%.

Banxico Governor Victoria Rodriguez said in an interview with Bloomberg this weekend that the Mexican peso's recent bout of volatility in the wake of rising tensions in the Middle East is not a concern for inflation.

Also expected are February's GDP numbers, which will very likely show a fifth straight month-on-month decline, and the March labor market report.

On the monetary policy front, Paraguay's central bank is expected to reduce borrowing costs for the ninth consecutive meeting, to 5.75%, before taking a break at its meeting in May.

Argentina announced its monthly budget results for March, following successive surpluses in January and February on the back of so-called shockwave economic measures taken by President Javier Miley. Analysts expect the same austerity to impact February's GDP data after January's deeply negative reading.

In Brazil, a central bank poll of analysts is likely to show a further erosion in inflation expectations after the government proposed easing its budget targets.

Latin America's largest economy will also present its March current account report, foreign direct investment, tax collections and bank lending data, along with its mid-month inflation report.

Early consensus sees a reading below 4%, within a tolerance range of 1.5% to 4.5% but still well above the 3% target.

–With assistance from Robert Jameson, Paul Jackson, Piotr Skolimowski, Monique Vanek, Beryl Ackman, and Tony Halpin.

(Updates with Australian Treasurer in Asia Department)

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