(Bloomberg) — Jerome Powell is likely to tell lawmakers that Federal Reserve officials need further confirmation that inflation is slowing before they are able to cut rates, even if there is evidence of softer growth and employment.
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June’s consumer price index data is expected to be another step toward that goal, but the numbers won’t be released until Thursday — after the Fed chairman wraps up two days of testimony in Congress. Powell will speak before the Senate Banking Committee on Tuesday, followed by an appearance in the House of Representatives on Wednesday.
With new data showing the highest unemployment rate since late 2021 and other numbers illustrating weaker economic growth, Powell is likely to face harder pressure from some lawmakers on why the Fed is reluctant to cut borrowing costs.
Powell said Tuesday that recent data indicate inflation is back on a downward path, but that he and his colleagues would like to see that progress continue.
The so-called core CPI, which excludes food and energy costs and is seen as a better gauge of underlying inflation, is expected to rise 0.2% for a second month in June. That would mark the smallest consecutive gains since August, a pace more palatable to Fed officials.
The inflation report is also expected to show a modest 0.1% increase in the headline CPI from a month earlier. Compared to June last year, the price index is expected to rise 3.1%, the smallest annual increase in five months.
Meanwhile, Friday’s monthly payroll report showed that the unemployment rate, while still historically low at 4.1%, continues to rise. Minutes from the Fed’s June policy meeting showed several officials pointing out the risk that a further slowdown in demand could lead to higher unemployment.
Economists will analyze the government’s report on producer prices on Friday to assess the impact of certain categories – such as portfolio management and health care – that contribute to the Fed’s preferred inflation gauge, the personal consumption expenditures price index.
What Bloomberg Economics says:
“We expect that soft inflation data for June, July and August will give the Fed enough confidence to start cutting rates by the time of the September FOMC meeting.”
—Estelle Ou, Stuart Paul, Eliza Winger, Chris G. Collins and Anna Wong, economists. For a full analysis, click here
It’s a light data week further north, but June home sales on Friday will shed light on whether the Bank of Canada’s rate cut that month woke the market from a slumber.
Elsewhere, inflation rates from China to Sweden and the aftermath of the French parliamentary election will be among the highlights.
Click here for what happened last week, and below is our summary of what’s going to happen in the global economy.
Asia
China could see mildly positive news on prices, with data on Wednesday expected to show consumer inflation turned higher in June and factory deflation eased to the slowest pace since January 2023. Whether this will help buoy manufacturing remains to be seen to be seen.
Other data shows that Japan’s worker wage data on Monday could show real wages falling for a 26th month in May, casting doubt on the prospects for achieving the virtuous cycle the Bank of Japan has already predicted. aspired for a long time.
Consumer price growth in India may have been higher in June, with Australia set to announce consumer inflation expectations on Thursday.
Trade statistics are coming from China, the Philippines and Taiwan, while Singapore is expected to release second-quarter gross domestic product figures this week.
On the policy front, a number of regional central banks are expected to hold their ground as investors look ahead to the prospects for rate cuts in the second half.
The Reserve Bank of New Zealand is meeting after a weak reading in the composite purchasing managers’ index pointed to slowing economic growth, potentially opening the door to a cut in the fourth quarter.
The Bank of Korea meets a week after inflation slowed more than expected, raising prospects for a cut in borrowing costs as early as August, according to Bloomberg Economics.
On Friday, Kazakhstan’s central bank will decide whether to follow May’s interest rate cut with a new one.
Europe, Middle East, Africa
A focus for investors on Monday will be the aftermath of the French elections. Although concerns in financial markets have subsided, the prospect of a hung parliament leading to a minority government that is not committed to repairing public finances remains a likely outcome.
In Britain, where its own election led to a landslide victory for Keir Starmer’s Labor Party, investors will be on the lookout for any initial decisions that will impact the economy and its own stretched fiscal position. Data on Thursday, meanwhile, could show a recovery in growth in May after stagnation the previous month.
European Central Bank policymakers have until Wednesday to speak publicly about the upcoming July 18 interest rate decision before a blackout period begins. Amid a scarce calendar, Bundesbank President Joachim Nagel and Executive Board member Piero Cipollone will appear.
It is also a quiet week for the figures in the euro region. German exports on Monday and Italian industrial production figures on Wednesday are among the highlights.
There is more on the calendar outside the single currency area, with several inflation figures scheduled for June.
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Hungary on Tuesday, then Norway and the Czech Republic on Wednesday, will all show slowing consumer price growth, albeit still with noticeable margins above 2%.
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On the same day, Russian data may show inflation has reached a new high in 2024, underscoring the challenge for the central bank. After keeping its policy rate at 16% so far this year, the Bank of Russia will most likely consider a hike of 100 to 200 basis points at its July meeting, Deputy Governor Alexey Zabotkin said recently.
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In Egypt, officials hoped Wednesday that inflation will slow for a fourth straight month from a peak of 36% in February, just before the central bank raised interest rates as part of a massive bailout from the International Monetary Fund, the UAE and others. .
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Also on Wednesday, inflation in Ghana is expected to slow for the third month in a row (from 23% in May) due to favorable base effects. The central bank will still be concerned about a monthly price increase that is expected to accelerate due to a slump in the cedi.
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And on Friday in Sweden, the Riksbank’s CPIF inflation gauge is expected to fall below 2% for the first time in almost three years.
Within the wider region, two major central bank decisions are looming:
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Israel’s monetary policy committee is likely to look past growing inflation pressures on Monday and keep the key rate at 4.5% for a fourth straight meeting to help an economy under pressure from the war in Gaza and escalating tensions with Hezbollah in Lebanon.
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Serbia’s central bank will make its monthly decision on Thursday, with officials able to provide guidance on their next move for policy rates after June’s rate cut, the first in more than three years.
Latin America
Data published Monday could show that consumer prices in Chile accelerated for a third month and moved further above target – while in Colombia, more than a year of steady disinflation appears to have come to a standstill.
Inflation in Mexico is likely to have risen higher for the fourth month in a row, which in no way contradicts the “benign CPI data” central bank deputy governor Jonathan Heath says the board wants to see before it goes again relax.
Banxico, which meets again in August and has paused the last two meetings at 11%, will publish the minutes of its June 27 decision on Thursday.
Inflation is rising in Brazil, along with the mood of President Luiz Inacio Lula da Silva. The Brazilian leader is furious about “excessive” double-digit interest rates and “Bolsonaro-nominated” central bank president Roberto Campos Neto. Lula’s verbal comments make it harder to control inflation, Campos Neto told Brazilian newspaper Valor.
A series of single-digit monthly figures in Argentina sees annual inflation finally slowing, after reaching 289.4% in April. Analysts polled by the central bank expect Friday’s monthly print to exceed May’s 4.2%.
Peru’s central bank meets on Thursday after maintaining its key interest rate at 5.75%. A rebound in June headlines and core inflation could sideline the bank for a second meeting.
–With help from Robert Jameson, Laura Dhillon Kane, Tony Halpin, Monique Vanek, Brian Fowler, Paul Wallace and Zoe Schneeweiss.
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