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Next week's economics: Jan 24 - 28

Economists expect the Fed to leave interest rates unchanged next week, despite evidence of high inflation and strong growth.
Next week's economics: Jan 24 - 28

All eyes will be on the Fed on Wednesday to see whether it will at last raise interest rates.

The chances are that it won’t: most observers expect the first move in March. This is largely because the Fed doesn’t want to spring a surprise on the markets, and wants to check that the Omicron variant has not greatly weakened the economy. It might, though, scale back quantitative easing again and hint at raising rates soon.

Figures next week will show reasons for it to do so on top of the fact that CPI inflation is now 7 per cent. Thursday’s numbers should show that the economy grew strongly at the end of last year, with real GDP rising at an annualised rate of over 6 per cent in the fourth quarter. We should also see steady rises in personal income and spending in December, and another increase in durable goods orders.

We might also see an increase in consumer confidence to well-above average levels, albeit not as high as before the pandemic. The tight labour market is doing more to raise consumers’ spirits than Omicron and inflation are to reduce them.

The housing market, however, might be coming off the boil a little. On Tuesday the S&P could report that annual growth in prices has fallen below 18 per cent, the lowest annual increase for six months.

In the eurozone indicators could be more mixed. The National Bank of Belgium should report that business confidence is steady at above-average levels. Historically, this has pointed to decent growth in the eurozone generally. On the other hand, though, Germany’s Ifo survey could show that while business confidence is stabilising after falling since last summer, it is doing so at a low level. And the ECB is likely to report that annual growth in the M1 measure of the money stock is slowing down, especially adjusted for inflation. In the past, this has been a lead indicator of slower growth in industrial production in the region. It’s not yet signalling severe weakness, but it is a reason for caution.

In the UK, the main news is likely to be the strength of the housing market. The Nationwide is likely to say that prices are rising around 11 per cent year-on-year. Most economists, however, expect a cooling off this year as a lack of affordability and rising interest rates offset the ongoing lack of supply.