Investors in the coming week will parse minutes of the Federal Reserve’s March meeting to gauge central bankers’ appetite for a half percentage point increase in interest rates next month.
Wednesday’s minutes will provide key details of the likely path forward on shrinking the Fed’s balance sheet. Fed Chair Jerome Powell said the plan will be laid out pretty clearly, hinting that policy makers debated an approach and came down in its favor.
The last time they shrank the balance sheet, the Fed set caps allowing holdings to run off at $50 billion a month—$30 billion in Treasuries and $20 billion in mortgage backed securities, phased in over a year—but officials have said they expect to go faster this time around.
In March, the Federal Open Market Committee raised its benchmark interest rate by just a quarter point against a backdrop of Russia’s war in Ukraine and the fastest inflation in four decades. Since then, price pressures have only mounted, and labor market data has shown solid employment growth and an acceleration in wages.
The U.S. added close to half a million jobs in March and the unemployment rate fell more than expected, according to government data on Friday. Those figures followed separate data showing a 6.4% jump in the personal expenditures price index, which the Fed uses for its inflation target.
Fed Governor Lael Brainard will participate in a Minneapolis Fed-hosted virtual discussion on inflation on Tuesday. It’s her first speech in months as she awaits Senate confirmation for the post of Fed vice chair.
The U.S. economic data calendar is light, with reports due on March services activity and the trade deficit for February.
What Bloomberg Economics Says:
“The rapid absorption of unemployed into the job market could mean the Fed can hike rates steeply to combat inflation without raising unemployment, at least in the near-term.”
—Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger, economists
Elsewhere, the European Central Bank will release minutes of its last meeting, only a week before its next decision. Monetary officials from Poland to Peru may hike rates, and counterparts from India to Australia are expected to keep policy on hold.
Click here for what happened last week and below is our wrap of what is coming up in the global economy.
Asia
Investors will be on high alert for further moves in the yen and Japanese bonds after a week-long tussle that saw the Bank of Japan repeatedly step into the market to defend its yield cap as it sticks with stimulus.
Household spending data Tuesday will likely point to weak consumption mid-way through the first quarter amid fears of a contraction.
A private gauge of service sector activity in China is likely to back up earlier data showing a hit from Covid lockdowns.
The Reserve Bank of Australia is expected to stand pat, though some economists now expect more rate hikes this year following pre-election spending plans outlined in the recent budget.
The Reserve Bank of India, which remains at the dovish end of the central bank spectrum, is also expected to hold. The Central Bank of Sri Lanka meets too.
South Korea gives its latest inflation numbers as hearings get lined up for Bank of Korea nominee Rhee Chang-yong ahead of a meeting later in April.
Europe, Middle East, Africa
A day after the Fed minutes, the ECB will release an account of its own decision in March, when officials surprised financial markets by accelerating their wind-down of stimulus. Since then, the price shock hitting the region has intensified, leading to a new record inflation reading of 7.5%.
The report will arrive just as euro-zone policy makers enter a quiet period before their April 14 meeting, meaning investors looking for clues on the next move will need to wait only a week for verification.
Data due in the euro zone will signal how the industrial sectors in Germany and France, its biggest economies, were weathering global supply logjams just as the war in Ukraine was poised breaking out.
In the U.K., meanwhile, investors may focus on policy maker comments. Bank of England Governor Andrew Bailey, Deputy Governor Jon Cunliffe and Chief Economist Huw Pill are all due to speak.
Poland’s central bank is poised for its seventh straight rate hike on Wednesday amid concerns that the rapid tightening may threaten growth. The next day, Hungarian policy makers take a weekly decision before inflation data arrives that may show a further increase from a 15-year high.
Kenya’s Treasury Secretary Ukur Yatani will on Thursday present the final budget of the current administration before Aug. 9 general elections. His focus is expected to be on reining in debt and reducing loan-serving costs in East Africa’s largest economy.
Turkish inflation data on Monday is expected show a further acceleration after reaching 54% in February, driven by a weaker lira and jumping energy costs. The price surge, including a 65% annual jump in food prices last month, has dented support for President Recep Tayyip Erdogan’s government before elections due in 2023.
Latin America
Inflation has been getting the better of Latin America’s policy makers for almost a year now, and analysts don’t expect March data to change that script.
In Colombia, analysts anticipate an outcome higher than 8.4% on Tuesday, representing a fivefold increase within 12 months.
Look for more of the same in Brazil and Chile, with early forecasts calling for a pickup toward 11% in the former and a jump of roughly a full percentage point from the current 7.8% in the latter.
By contrast, Mexico may get a respite, with the March reading hovering just below November’s 20-year high of 7.37%.
And while the headline figures have been eye-catching, core inflation has surged as well, suggesting a long, slow process of disinflation is in store once prices actually peak.
To that, Brazil’s central bank president, Roberto Campos Neto, sees inflation topping out in April while Peru’s Julio Velarde has ventured a “might” for the same month.
Two central banks— Colombia and Mexico—will post the minutes of their March meetings, likely providing insight on possible terminal rates and timelines.
Look for Uruguay’s central bank to raise its key rate for a sixth straight meeting while Peru is all but certain to hike for a ninth straight time.
—With assistance from Sylvia Westall, Paul Jackson, Robert Jameson, Ott Ummelas, and Zoe Schneeweiss.
