(FILES) People shop at a supermarket in Montebello, California, on May 15, 2024. The US Federal Reserve's favored inflation measure eased further in June, according to government data published on July 26, 2024. The personal consumption expenditures (PCE) price index eased to an annual rate of 2.5 percent in June, the Commerce Department said in a statement, down slightly from 2.6 percent a month earlier. (Photo by Frederic J. BROWN / AFP)
WASHINGTON: US Federal Reserve (Fed) officials are on the verge of lowering borrowing costs within months, a move chair Jerome Powell may signal this week as the risks grow of imperilling a solid but moderating job market.
US central bankers, who’ve kept interest rates at a more than two-decade high for a full year, are widely expected to leave them there again when their two-day meeting ends on Wednesday.
Instead, investors see Fed officials lowering their benchmark rate in September.
Recent data have been promising, with milder price increases alongside robust economic growth, but the Fed wants a bit more assurance that inflation will continue to fall toward their 2% target.
The downdraft in price pressures, paired with an upward creep in the unemployment rate, has brought the Fed’s two goals – maximum employment and stable prices – more into balance.
Officials want to tame inflation, but they also don’t want to cause undue harm to the labour market by holding rates high for too long.
That puts the closely watched monthly jobs report on Friday even more in the spotlight, along with other readouts due on the labour market.
The July employment report is likely to show a continued softening in the pace of hiring amid a still-limited number of layoffs. Non-farm payrolls are forecast to advance by 178,000 – a healthy but more moderate pace.
The unemployment rate, which has climbed in each of the past three months, is seen holding at 4.1%.
Hurricane Beryl, the storm that struck Texas earlier this month, presents a wild card and could restrain hours worked. Fresh figures out tomorrow on job openings and quitting will also be scrutinised.
The Conference Board’s consumer confidence index, out tomorrow, will offer insight into the state of consumers, and investors will get an update on the beleaguered manufacturing sector with the Institute for Supply Management’s factory report on Thursday.
Bloomberg Economics economists said, “Most Fed officials will likely agree on one thing when they convene for their July 30-31 meeting: downside risks to the US central bank’s full employment mandate are about balanced with upside risks to inflation.
“We expect broad agreement that a rate cut will be appropriate sometime ‘soon’, but there likely will be minor differences about the timing.”
Further north, Statistics Canada is set to release gross domestic product data for May, which economists expect will show a modest 0.2% monthly bump.
The agency will also issue a preliminary estimate for June, shedding light on whether the country’s economy is on track to match the Bank of Canada’s estimate of 1.5% annualised growth in the second quarter.
Elsewhere, rate decisions in Japan and Britain will be closely watched – the former for a hike, the latter for a cut.
Gross domestic product data in the eurozone will give a snapshot of the state of the economy in the region and its top economies in the second quarter.
Combined with inflation data for July, that will provide clues on whether the European Central Bank will be able to lower borrowing costs again in September. — Bloomberg
