Timely update: Freeland speaks during a press conference in Ottawa, Ontario. The Canadian Finance Minister is due to release a long-delayed budget update amid widespread speculation she has broken her promise to keep the deficit at or below US$28bil. — Reuters
FRANKFURT: A year when inflation subsided enough for monetary policy easing to start in most advanced economies is about to conclude with a 24-hour flurry of decisions led by the US Federal Reserve (Fed).
The US announcement will take centre stage tomorrow, followed by peers in Japan, the Nordics and the United Kingdom over the following day – amounting to half of the world’s 10 most-traded currency jurisdictions.
Those events will draw most attention among investors bracing for the last big week for monetary policy in 2024.
By the close of play on Friday, at least 22 central banks, accounting for two-fifths of the global economy, will have set borrowing costs.
The upshot is likely to underscore how momentum for easing now looks increasingly uneven as policymakers weigh up differing risks in the coming year.
While the Fed itself is poised to deliver a quarter-point rate cut, the dawn of 2025 and the prospect of inflationary import tariffs threatened by the incoming administration of Donald Trump may give officials pause about the pace of further moves.
Bloomberg Economics said: “Trump has promised a whirlwind of action that will affect inflation and economic activity, complicating the Federal Open Market Committee’s job.
“Because monetary policy works with a lag, policymakers aim to set policy at each meeting based on their best understanding of the economic circumstances that will prevail a year or two ahead.
“In setting the federal funds rate at the next few meetings, policymakers will assess the odds that Trump’s various proposals will be implemented, and balance their risks.”
The Bank of England (BoE), mindful of both the growth shock his trade policies could cause but also of lingering price pressures, is reducing borrowing costs only cautiously and is widely expected to keep them on hold on Thursday.
The Bank of Japan (BoJ) meanwhile, having finally exited negative rates this year, will probably wait until 2025 before raising again.
Decisions in the Nordics will highlight divergence even across a smaller region.
Sweden’s Riksbank is almost certain to cut for the fifth time, and its Norwegian counterpart is likely to confirm that its first reduction of the cycle won’t come until next year.
Elsewhere, key data on the health of China’s economy, a likely pickup in UK inflation and business surveys from the eurozone may be among highlights.
While the Fed’s preferred gauge of underlying inflation will be released at the end of the week, after tomorrow’s rate decision, officials can take probably some comfort in projections that price pressures are cooling.
The November personal consumption expenditures price index, excluding food and energy, will probably rise 0.2% – the smallest advance in three months – economists forecast Friday’s report to showed.
The report is also seen showing solid consumer spending and income growth, suggesting a resilient economy.
Retail sales figures will likely illustrate similar strength. Other reports this coming week include industrial production, housing starts and existing-home sales for November.
In Canada, Finance Minister Chrystia Freeland will release a long-delayed budget update amid widespread speculation she has broken her promise to keep the deficit at or below C$40.1bil (US$28.18bil).
The document may contain new border-security spending to guard against Trump’s tariff threats, as well as affordability measures aimed at winning back voters ahead of an election next year.
In an end of the year speech, Bank of Canada governor Tiff Macklem will reflect on an extraordinary pace of rate cuts and look ahead to a possible trade war.
Headline inflation for November is expected to fall below the 2% target again after it briefly ticked back up to that threshold in October.
Statistics Canada will also release population estimates for the third quarter.
In Asia, the week will begin with a slew of data from China that will be closely monitored for signs that the world’s second-largest economy is being lifted by government stimulus efforts.
Industrial production and retail sales data will be key to watch.
Purchasing manager index (PMI) numbers from Australia, India and Japan are also scheduled for release, to give another feel for growth in the wider region.
The BoJ’s decision comes on Thursday, with economists and markets expecting a hold after mixed communications from officials nudged their views to a later move.
Elsewhere in central banking, Pakistan is expected to start off the week with a rate cut after inflation eased, and tomorrow the Bank of Thailand is projected to keep its benchmark rates unchanged at 2.25%.
Indonesia and the Philippines are both expected to cut borrowing costs by 25 basis points.
Meanwhile, South Korea’s central bank vowed to stabilise financial markets and highlighted the importance of “uninterrupted implementation” of key financial and economic measures, in its first statement since lawmakers voted to impeach President Yoon Suk Yeol.
New Zealand is set to report data showing their economy is back in recession after shrinking in the third quarter on Thursday.
Throughout the week, trade figures are due from Indonesia, Japan, Malaysia and New Zealand, reflecting the latest state of Asia’s trade appetite.
In England, the BoE will almost certainly keep rates unchanged at its final decision of the year, sticking with its wary approach to easing.
Data on both jobs and inflation before then will inform officials further to last week’s report that showed a second straight month of contraction in October.
The labour report is expected to show a pickup in annual pay growth that shouldn’t overly concern policymakers, while the inflation numbers may reveal an acceleration both in the headline and underlying gauges, adding to the case to stay cautious.. — Bloomberg
