A year in which inflation fell enough for monetary policy to begin to be relaxed in most advanced economies is about to conclude with a series of 24-hour decisions led by the Federal Reserve.
The US announcement will take center stage on Wednesday, followed by peers in Japan, the Nordics and the UK the following daywhich represent half of the world’s 10 most traded currency jurisdictions.
Those events will attract the most attention among investors preparing for the last big week of monetary policy in 2024. By the close of business on Friday, at least 22 central banks representing two-fifths of the global economy will have set borrowing costs.
The result is likely to highlight how the push towards easing appears increasingly uneven, as policymakers weigh different risks for the coming year.
While the Fed itself is prepared to implement a quarter-point rate cut, the beginning of 2025 and the prospect of inflationary import tariffs threatened by the incoming Donald Trump administration may cause officials to reflect on the pace of future action.
What Bloomberg Economics says:
“Trump has promised a series of measures that will affect inflation and economic activity, complicating the FOMC’s job. Because monetary policy operates on a lag, policymakers seek 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 upcoming meetings, policymakers will assess the likelihood that Trump’s various proposals will be implemented and weigh their risks.”
—David Wilcox, director of US economic research.
The Bank of England, aware of both the growth shock its trade policies could cause and persistent price pressures, is reducing borrowing costs only cautiously and is widely expected to keep them unchanged on Thursday.
Meanwhile, the Bank of Japan, having finally exited negative rates this year, will likely wait until 2025 before raising them again.
Decisions made in the Nordic countries will highlight divergences even in a smaller region. Sweden’s Riksbank is almost certain to cut its rate for the fifth time, and its Norwegian counterpart is likely to confirm that its first reduction of the cycle will not come until next year.
Furthermore, key data on the health of China’s economya likely pick-up in inflation in the UK and Eurozone business surveys may be among the highlights.
United States and Canada
While the Fed’s preferred gauge of core inflation will be released later in the week, following Wednesday’s rate decision, lOfficials can probably take solace in projections that price pressures are cooling.
November’s personal consumption expenditure price index, excluding food and energy, will likely rise 0.2%, the smallest gain in three months, economists forecast in Friday’s report. The report also shows strong consumer spending and income growth, suggesting a resilient economy.
Tuesday’s retail sales numbers are likely to show similar strength. Other reports next week include industrial production, home construction starts and existing home sales for November.
In Canada, Finance Minister Chrystia Freeland to release long-delayed budget update amid speculation widespread reports that he has broken his promise to keep the deficit at $40.1 billion or less.
The document may contain new border security spending to protect against Trump’s tariff threats, as well as affordability measures aimed at winning back voters before next year’s elections.
In a year-end speech, Bank of Canada Governor Tiff Macklem will reflect on the extraordinary pace of rate cuts and analyze the future of a possible trade war.
Headline inflation for November is expected to fall back below the 2% target, after briefly rising back to that threshold in October. Statistics Canada will also release population estimates for the third quarter.
Asia
The week will begin with a flurry of data from China that will be closely watched for signs that the world’s second-largest economy is being boosted by government stimulus measures. Industrial production and retail sales data will be key.
PMI numbers from Australia, India and Japan will also be released on Monday, to give another idea of growth in the broader region.
The BOJ’s decision will be known on Thursday, and economists and markets expect it to stand after mixed communication of officials will push their opinions into a late move.
Elsewhere in central banking, Pakistan is expected to start the week with a rate cut after inflation moderated, and on Wednesday The Bank of Thailand is projected to keep its benchmark rates unchanged at 2.25%.
Both Indonesia and the Philippines are expected to reduce their borrowing costs in 25 basis points.
Meanwhile, South Korea’s central bank vowed to stabilize financial markets and stressed the importance of “uninterrupted implementation.” of key fiscal and economic measures, in his first statement since lawmakers voted to impeach President Yoon Suk Yeol.
New Zealand will release data on Thursday showing that its economy is back in recession after contracting in the third quarter.
Indonesian trade figures will be published later this weekJapan, Malaysia and New Zealand, reflecting the latest state of Asia’s trade appetite.
Europe, Middle East, Africa
The Bank of England will almost certainly keep rates unchanged in its final decision of the year, maintaining its cautious easing strategy. Employment and inflation data released before then will inform officials about last week’s report that showed a second straight month of contraction in October.
The jobs report is expected to show a recovery in annual wage growth that should not worry policymakers too much, while inflation figures may reveal an acceleration in both general and underlying indicators, reinforcing the arguments in favor of maintaining caution.
In the euro area, survey indicators may cause investors to focus on how the consequences of political turmoil in France and Germany are affecting businesses.
The region’s latest purchasing managers’ indices will be published on Monday, followed the next day by the Munich Ifo institute’s business expectations index and the ZEW investor confidence index, both focused on Germany. French business confidence will be published on Thursday.
Both countries have been in the news after their governments collapsed over budget disputes. On Monday, German Chancellor Olaf Scholz will undergo a parliamentary vote of confidence that he fully intends to lose to trigger a snap election on February 23.
Meanwhile, France’s new prime minister, Francois Bayrou, will assemble a cabinet with personalities acceptable to the widest swath of lawmakers in parliament. in order to promote the 2025 financial plan, a key issue on its agenda.
Several policymakers are scheduled to speak in the wake of the European Central Bank’s quarter-point rate cut last week, including the president Christine Lagarde, Vice President Luis de Guindos, Executive Committee member Isabel Schnabel and Chief Economist Philip Lane.
Martins Kazaks, a member of the Governing Council, told Bloomberg in an interview published on Sunday that the ECB should cut rates further, but it probably will not need to raise them to levels that stimulate economic expansion.
As for the south, data from Israel due on Sunday will likely show inflation accelerated to 3.6% in November from 3.5% the previous month, as the war in Gaza takes a toll on the economy. and government spending skyrockets. This could cause the central bank to leave rates unchanged until the second half of 2025.
Nigerian data released on Monday could reveal that inflation accelerated to 34.6% in November from 33.9% the previous month, driven by higher gasoline prices and floods earlier this year that destroyed crops. . Nigeria’s central bank governor Olayemi Cardoso said earlier this month that he expects a downward trend next year.
Two days later, Nigerian President Bola Tinubu will deliver his annual budget speech. The country has set out ambitious plans to raise revenue next year, including raising the value-added tax rate from 7.5% to 10% and significantly reducing its budget deficit. If achieved, Fitch Ratings says it could put the country in position to receive an upgrade in its rating.
Latin America
Rising inflation and runaway expectations have Brazil watchers eager to analyze the minutes of the meeting of central bank rates for December 10 and 11 and its final 2024 quarterly inflation report.
Economists estimate the key rate will be 13.5% by this time next year, up from 12.25% now. while markets are pricing in a year-end 2025 rate that will be more than 200 basis points higher.
Argentina reports its November budget balance along with its third quarter production datawhich may show a sharp increase with President Javier Milei’s administration entering its second year.
Chile’s central bank got enough daylight since November consumer prices report to maintain a quarter-point cut to 5% as the consensus here, even as peso weakness poses risks.
Latin America’s second-largest economy is cooling, as is headline inflation, while underlying readings have declined for 22 straight months. That makes a fourth consecutive quarter-point cut by Banxico on Thursday to 10% virtually certain.
The 34 analysts surveyed by Citi expect the same and three of them predict a reduction of half a point.
In Colombia, six separate economic reports, including October GDP proxy figures and October retail sales data, They should underscore the economy’s loss of momentum after weaker-than-expected third-quarter results.
A cooling economy coupled with continued disinflation makes analysts expect a ninth consecutive central bank rate cut to 9.25%.
