Forward guidance: A trader works the floor of the New York Stock Exchange as Powell speaks on TV. The Fed chairman is expected to highlight to lawmakers that the resilience of the economy is a key reason for not rushing into further rate cuts. — Bloomberg
WASHINGTON: US inflation shows scant signs of downward momentum at the start of the year, while healthy job growth under-girded the economy, backing the Federal Reserve’s (Fed) stance to hold the line on interest rates for now.
Fed chairman Jerome Powell, who offers his semiannual testimony to lawmakers today and tomorrow, will likely highlight the resilient economy as a key reason central bankers are in no rush to further cut borrowing costs.
With the US economy in a good place, Fed officials also have time to assess the impacts of the new Trump administration’s policy changes on trade, immigration and taxes.
Bureau of Labour Statistics figures due tomorrow, shortly before the second half of Powell’s two-day testimony marathon, are forecast to show the consumer price index (CPI) excluding food and energy rose 0.3% in January for the fifth time in the last six months.
Compared with a year earlier, the core CPI is forecast to have risen 3.1%.
While marginally lower than than the annual figure for December, that’s just a 0.2 percentage point decline from the middle of last year.
After sizeable declines in 2023 and early 2024, progress towards further disinflation has essentially stalled, just as the job market revved up late last year.
Last Friday, Labour Department data showed payrolls growth in the three months through January averaged 237,000, the strongest for any similar period since early 2023.
That helps explain why Fed officials are content to stand pat for the time being after a full percentage point of rate cuts in 2024. Moreover, proposed policies from the Trump administration risk keeping inflation elevated.
“Chairman Powell has said the Fed needs to see ‘real progress’ on inflation or some labour market weakness to consider adjusting rates,” said Bloomberg Economics’ Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G Collins.
“We think January’s CPI will offer mixed evidence. We expect headline and core CPI inflation both rose 0.3%.”
The CPI report, which also includes an annual update of seasonal adjustment factors and a re-weighting of components that go into the index, will be followed on Friday by retail sales for January.
Economists estimate another healthy advance in merchant receipts for the month, excluding motor vehicle dealers.
Meanwhile, President Donald Trump’s announcement that he intends to unveil reciprocal tariffs this week will be watched for their potential impact on both the United States and the world economy.
Brazil’s government is mapping out sectors of the economy that could be affected by a Trump trade war as well as measures the country can adopt in case of tariffs imposed by the US, Folha de S Paulo reported on Sunday.
Looking north, the Bank of Canada’s summary of deliberations will offer insight into the central bank’s move to strip all forward guidance from its rate decision due to the uncertainty of Trump’s threat of tariffs.
Elsewhere, UK growth data, testimony by the European Central Bank president, Indian consumer prices and rate decisions from Russia to Peru will be among the highlights.
Data published on Sunday showed that China’s consumer inflation accelerated for the first time since August, caused by a burst of household spending around the Lunar New Year holiday even as deflationary pressures persist.
For the remainder of the week, India will be the main focus after the world’s fifth-largest economy unexpectedly reported the weakest growth since the pandemic.
Its central bank last Friday delivered the first rate cut in almost five years.
Tomorrow, industrial production figures are likely to show India’s activity slowing in December and consumer prices at the start of 2025 easing to the slowest pace since August.
Wholesale prices, though, another measure of inflation, likely accelerated. January trade data will published also on Friday.
Moving east, consumer confidence data is expected early in the week from Indonesia, Vietnam provides figures on vehicle sales, and Malaysia releases its final reading of gross domestic product for the fourth quarter.
The Philippines central bank is forecast to cut its lending rate on Thursday by 25 basis points after a decline in rice prices, which have an outsided influence on the country’s inflation readings.
In South Korea, the unemployment rate for January, set for release on Friday, will show labour market conditions after joblessness surged to the highest level since 2021 in the prior month.
Import and export price figures will provide a look at January demand after trade activity declined.
Japanese producer prices likely accelerated on an annual basis and held firm in January from the prior month. — Bloomberg
