Top of the billing next week is the Fed’s rate setting meeting. We know rates will increase, but by how much? The underlying state of the US economy is hard to gauge: but most economists anticipate weak growth, rather than outright recession when updated US GDP figures are released on 28 July.
Last month’s Conference Board release saw the Consumer Confidence Index drop, yet there are underlying signs of resilience: purchasing intentions for cars, homes and major appliances held relatively steady. Updated figures will be released on 26 July. It also appears that the US economy could handle higher interest rates. Capital Economics notes that rate-sensitive spending is currently a relatively small share of the economy, and household balance sheets are in good shape.
A 75 basis point hike looked all but certain until inflation figures surprised to the upside again last week, hitting 9.1 per cent. The Fed is now under pressure to clamp down, and whispers of a 100 basis point rise could prove self-fulfilling: the Fed will want to avoid sending any signal that it is going ‘soft’ on rising inflation. Watch this space.
The Bank of Japan will also set rates on 29 July, but in a very different macroeconomic environment. With inflation at 2.5 per cent, the bank kept rates on hold last month – despite the rest of the world moving in the opposite direction. ING’s senior economist for South Korea and Japan, Min Joo Kang, doesn’t think policy tweaks are feasible in the near term, but that hikes are possible later in the year if demand side pressures build up.
Data this week will inform the European Central Bank's (ECB) next rate-setting move. Given high inflation, interest rates are clearly not at their terminal level. Will it follow a path of steady increases like the Bank of England, or ‘front load’ with a series of bigger rate rises? Eurozone inflation on 29 July will shed more light on the pressures the ECB is facing, as will GDP figures on the same day.
UK house price data from Nationwide comes out on 28 July. Halifax’s June release surprised with annual growth of 13 per cent, defying widespread predictions of a slowdown. Increased pressure on household budgets from inflation and rising rates are expected to start weighing on affordability – but when? The BoE’s Money and Credit report on 29 July will provide data on net mortgage debt and mortgage approvals. Meaningful decreases could be a sign that the housing market is finally starting to cool.