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Fed Primed to Cut Rates, But Still Debating Depth

The countdown to the Federal Reserve’s interest rate decision of July 31 is underway with investors debating whether policy makers will cut interest rates by 25 basis points or 50 basis points.

Chairman Jerome Powell studiously avoided committing himself and colleagues in either direction in congressional testimony last week.

In debate is whether officials believe the economy needs an “insurance cut” against the possibility of a slowdown, or a more aggressive move to counteract a serious deterioration that may already be underway.

“As Jay Powell made clear in his testimony and the minutes of the June meeting further emphasized — weak factory conditions and slowing global growth are bigger motivators of Fed easing than below-target inflation,” said Bloomberg Economics’ Carl Riccadonna. “For this reason, the recent pickups in the CPI and PPI do not jeopardize the likelihood of the Fed trimming rates later this month — and further still by year-end.”

Fed officials are set to go quiet ahead of their decision, but Powell will speak at a dinner in Paris on Tuesday.

He will then join a gathering of Group of Seven finance ministers and central bankers for a meeting north of the French capital at which the trade war and economic slowdown will likely top the agenda.

Here’s our weekly rundown of other key economic events:

U.S.

Among those speaking are Fed Bank of New York President John Williams on Monday and Thursday, Charlie Evans of Chicago on Wednesday and Raphael Bostic on Thursday. James Bullard of St. Louis steps up to the microphone on Friday as does Boston’s Eric Rosengren. They will have a decent amount of data to chew over. On Tuesday, retail sales data are expected to show some slowing in June, as is industrial production on Tuesday. On Friday the University of Michigan releases its survey of consumers. The Fed’s own Beige Book, a snapshot of economic performance around the country, is out on Wednesday.

Europe, Middle East and Africa

The G-7 officials will gather nearby Paris on Wednesday and Thursday. Bank of England Governor Mark Carney speaks on Tuesday, ahead of data on inflation on Wednesday and retail sales on Thursday. As European Central Bank officials decided what to do next, Tuesday sees the publishing of the German ZEW survey and euro-area inflation comes the next day. Ukraine’s central bank meets on Thursday and may cut its 17.5% benchmark.

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South Africa’s central bank may lower its rate by 25 basis points to 6.5% on Thursday amid expectations for another year of near-stagnation in the economy. Zimbabwe’s inflation rate may have surpassed 100% in June and could worsen further after last month’s reintroduction of the Zimbabwean dollar last month. Turkey’s latest unemployment rate will be announced on Tuesday — it was last reported above 14% in March, near the highest level since President Recep Tayyip Erdogan came to power 16 years ago.

Asia

China’s data dump on Monday will probably show a weakening in the economy in the second quarter on the back of trade tensions. South Korea and Indonesia central banks will decide interest rates on Thursday, with the Fed’s dovish stance increasing the likelihood of a move. Indonesia may be more inclined to cut by 25 basis points next week, while the Bank of Korea may wait until August. Trade figures from India, Indonesia and Japan this week will give more clues on how the tariff war is playing out in the region. In Australia, the unemployment rate is expected to be unchanged, giving the central bank some breathing room after back-to-back rate cuts.

Latin America

Brazil’s 2019 growth estimates are set to fall for a 20th consecutive week in a central bank poll of economists due on Monday. In the previous survey, economists forecast GDP to expand a mere 0.82% this year. The following day, consumer price data is expected to show Argentina’s inflation cooled for a third straight month in June as the economy shows nascent signs of crawling out of recession. On Thursday, Chile’s central bank is seen keeping its key interest rate at 2.5% after a shocking 50 basis points cut in the previous meeting.

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