(FILES) A display of credit cards accepted for use is seen on a door as a shopper steps out of a store on September 12, 2023 in Monterey Park, California. The US economy is set to report another quarter of solid growth Wednesday, less than a week before the presidential election, but analysts say it remains unclear if positive data can sway inflation-weary voters. Despite spending more, American consumers have been downbeat about their job and financial prospects -- meaning that Democrat Kamala Harris still comes out behind Republican Donald Trump in opinion polls about the economy. (Photo by Frederic J. BROWN / AFP)
Washington: The US Federal Reserve (Fed) and many rich-world peers are widely expected to lower interest rates again this week, right after a US presidential election that may not be decided yet.
Central banks responsible for more than a third of the global economy will set borrowing costs in the wake of the vote, clinging to whatever certainties they can discern on the likely path of American policy for the next four years.
With Vice-President Kamala Harris and former president Donald Trump neck-and-neck before Election Day tomorrow, monetary officials from Washington to London may find themselves still in suspense.
Election aside, US policymakers have already communicated a desire to proceed with a more gradual pace of rate cuts after September’s half-point reduction. Economists widely expect a quarter-point move on Thursday, followed by another in December – and their conviction grew after data last Friday showed the weakest hiring since 2020.
Fed officials try to steer clear of politics, yet they kicked off a rate-cutting cycle heading into the final stretch of an election whose outcome may hinge on how voters feel about the economy.
While chair Jerome Powell will likely stress that the current conditions warrant less restrictive policy when he speaks after the decision, he and his colleagues still risk political backlash.
Central banking counterparts elsewhere are confronting a panoply of risks ranging from slowing economic growth to lingering inflation, even before they contemplate what sort of hit to global trade Trump’s threat of tariffs would effectively entail.
While the Reserve Bank of Australia will probably keep borrowing costs on hold again in a decision tomorrow, hours before US polls open, other peers are poised to act.
Those in Britain, Sweden, the Czech Republic and elswewhere are anticipated to cut rates in decisions after Election Day, while Brazilian officials may hike by as much as a half point.
With such a close-run presidential race, policymakers at the 20 or so central banks setting borrowing costs this week may need to prepare for an extended wait until there’s a settled result.
In modern US elections, the losing candidate generally concedes within a day or two, but the 2020 outcome wasn’t called until four days later.
US and Canada
Apart from the Fed decision, data due in the US include the preliminary estimate of third-quarter productivity growth.
Such gains have been robust recently as businesses invest in new technology and artificial intelligence, which could enable firms to raise wages without fanning inflation.
The Institute for Supply Management will also release its October report on the economy’s service sector. The University of Michigan is due later in the week to report consumer sentiment in early November, against a backdrop of an underlying labour market that continues to cool.
Turning to Canada, the labour force survey due for October will follow a surprisingly solid report in September that saw the jobless rate tick down to 6.5%.
The Bank of Canada nevertheless proceeded with a 50 basis-point cut on weak inflation and economic growth, and the fresh jobs data will offer insight into how the labour market is holding up.
The central bank will release a summary of deliberations that led to their jumbo-cut decision and senior deputy governor Carolyn Rogers will speak at the Economic Club of Toronto.
Asia
The week may start with some excitement in South Asia, where Pakistan’s central bank is likely to keep its monetary easing cycle moving at a quick pace with another two-percentage-point cut, bringing its key rate to 15.5%.
The following day, Australian officials are expected to hold their cash rate target at 4.35% after consumer inflation stayed elevated in the three months through September, cementing notions that policymakers will have to wait before pivoting.
The Reserve Bank of Australia will also release a new round of economic forecasts that could shed light on the timing of a potential cut. Malaysia’s central bank is seen standing pat on its benchmark rate on Wednesday.
South Korea releases an update on inflation tomorrow, with figures expected to show further easing, supporting the Bank of Korea’s policy pivot last month.
Consumer-price statistics are also due from the Philippines, Thailand, Vietnam and Taiwan.
Japan publishes wage data that may keep the central bank on track for a rate hike late this year or early next, and trade data are due from China, Australia, Vietnam, Taiwan and the Philippines.
Countries publishing third-quarter gross domestic product data include the Philippines and Indonesia.
Finally, China releases key updates on price trends on Nov 9, with the focus on whether consumer inflation continues to stagger along at a pace just north of zero, and factory-gate prices slide further, after declines deepened in the previous two months.
Europe, Middle East, Africa
The Bank of England decision last Thursday may draw particular attention, coming just after plans for higher borrowing and spending unveiled in the Labour government’s budget pushed British borrowing costs to their highest in a year.
That tense backdrop isn’t anticipated to distract policymakers from further easing for now.
They’re predicted by all 49 economists surveyed by Bloomberg to deliver a quarter-point rate cut on Thursday.
With the budget featuring a fiscal loosening, Bloomberg Economics reckons that quarterly forecasts accompanying the decision will probably show higher growth and medium-term inflation.
Turning to Sweden, expectations for the Riksbank have shifted decisively in favour of a half-point cut to 2.75% on Thursday, after data showed the economy remains in a holding pattern.
Output shrank in the third quarter, and the country’s large export sector is becoming more pessimistic.
After almost three years of stagnation, Swedish officials may adopt a greater sense of urgency in aiding growth, especially as inflation has fallen below its 2% target and threatens to remain stuck there unless domestic demand picks up again.
On the same day, Norway’s Norges Bank is expected to keep its rate at 4.5%, with renewed krone weakness likely to preserve its outlook for no easing until March next year.
Even with underlying inflation slowing, a currency drifting closer to multi-year lows is clouding projections for imported price growth. Norway’s ruling coalition has also drafted a budget for 2025 that’s more expansionary than expected by policymakers, adding to arguments for them to stay hawkish.
In the eurozone, industrial data are likely to prove a highlight, with numbers from France, Germany and Italy all scheduled. Several policymakers are slated to speak, including European Central Bank president Christine Lagarde, vice-president Luis de Guindos, and chief economist Philip Lane.
Turkish data today will probably show inflation dipped slightly in October, to 48%. The central bank’s aim is to slow it to the 38% to 42% range by the end of the year, allowing it to start cutting the rate from its current level of 50%.
Later in the week, International Monetary Fund chief Kristalina Georgieva is expected to visit Cairo to discuss an US$8bil loan programme.
Egypt has signalled it wants to review targets and timelines of the deal amid regional upheaval, with Houthi attacks in the Red Sea and the war in Gaza leading to reduced Suez Canal traffic and tourism revenue. — Bloomberg
