Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
Disappointing economic and fiscal forecasts from the OBR haven’t prevented the Chancellor, Jeremy Hunt, from unveiling a splash at previous fiscal events. This time last year, he was handed £14.5bn of headroom against his fiscal mandate to ensure the …
23rd February 2024
RBA won't hike rates again Flash PMI data released yesterday showed that Australia’s composite output index jumped to a 10-month high of 51.8 in February. The index is now consistent with annual real GDP growth of about 2.0% in Q1 (see Chart 1), which …
Central banks in both Australia and New Zealand are likely to remain in “wait and watch” mode in the near term, given lingering risks to the inflation outlook. However, we think concerns about inflation persistence are overdone. Goods inflation is already …
22nd February 2024
Minutes lean a little hawkish, but don’t rule out May rate cut The minutes of the Fed’s late January policy meeting included support for both hawks and doves although, somewhat disappointingly, there was no attempt to quantify what gaining “greater …
21st February 2024
The economy continues to appear impervious to higher interest rates and, although we expect growth to slow over the first half of this year, that slowdown is likely to be modest. But we don’t expect continued economic resilience to prevent inflation from …
An AI productivity boom. A Chinese structural slowdown. Aging workforces. In the coming decades, the global economy will be shaped by forces that will dictate which countries will make strides and which will stumble. Our Long Run Economic Outlook presents …
GDP has fallen for two consecutive quarters but we don’t think the economy is in recession and should return to growth this year. While the gap between nominal wages and inflation is closing fast, the wage-price virtuous cycle will receive a boost when …
20th February 2024
RBA’s talk of tightening is just bluster The minutes of the RBA’s February meeting showed that uncertainty remains the name of the game. However, we think that the incoming data should give the Board greater conviction that it has done enough to subdue …
In a week in which UK and Japanese data both confirmed two consecutive quarters of contracting GDP, Group Chief Economist Neil Shearing explains why the concept of “recessions” can be unhelpful in understanding the state of economies. He also tells David …
16th February 2024
Signs of healthy growth going into the first quarter support our view that the Bank of Canada will probably wait until June to pivot to rate cuts. Signs of positive activity in the first quarter The latest January data has brought signs that growth could …
Services inflation will slow sharply Australian labour market data published yesterday garnered considerable attention, largely because they showed that the unemployment rate overshot analyst expectations and jumped to a two-year high of 4.1%. However, we …
We think that global growth will undershoot consensus expectations in 2024 as various props to growth from 2023 fade and as the lagged effects of past rate hikes continue to feed through. Among the advanced economies, the US will continue to outperform …
15th February 2024
This page has been updated with additional analysis since first publication. In the mildest of mild recessions, but recovery is in sight The news that the UK slipped into technical recession in 2023, will be a blow for the Prime Minister on a day when he …
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
14th February 2024
We survey 12 major advanced economy housing markets to understand why house price falls have been small despite high starting points and sharp increases in mortgage rates. We then use this information to ascertain whether the correction in house prices is …
We’re trying a ‘quickfire round’ on this week’s episode of The Weekly Briefing from Capital Economics to get Group Chief Economist Neil Shearing answering the questions that clients have been asking most frequently in recent days: Could inflation rebound? …
9th February 2024
The strength of the labour market in January is another reason to think that the Bank of Canada can wait a little longer before it starts to cut interest rates. Bank’s latest communications give little away Governor Tiff Macklem gave little away in his …
RBA’s hawkish bias will be put to the test While the RBA’s decision to leave rates on hold on Tuesday didn’t surprise anyone, the Bank’s Monetary Policy Statement did raise a few eyebrows. In contrast to a number of its developed-market counterparts, the …
The euro-zone will remain close to recession in the first half of the year as the effects of higher interest rates continue to weigh on household consumption and investment, and fiscal policy is tightened. Headline inflation will be close to the ECB’s 2% …
8th February 2024
The resurgence in productivity growth is mainly a cyclical response to the tightness of the labour market rather than a sign that the AI revolution is already bearing fruit. Nevertheless, that still implies scope for productivity growth to remain …
7th February 2024
The faster-than-expected fall in wage growth in November suggests the unexpected rebound in CPI inflation in December will be fleeting. We still think that by April CPI inflation will have fallen below the 2.0% target, and further declines in utility …
What does the recent data flow and Jerome Powell’s pushback mean for the timing of the first Fed rate cut? How quickly and easily will core inflation get back to target? How far will the Fed go to cut rates this year? Chief US Economist Paul Ashworth and …
6th February 2024
With the Reserve Bank of Australia still striking a hawkish tone at its meeting today, we’re pushing back our forecast for the Bank’s first rate cut from May. But we still think that incoming data will show enough of a drop in inflation alongside …
RBA pours cold water on the prospect of early rate cuts Although we're sticking with our view that the RBA is done tightening policy, rate cuts may not be in play until the second half of this year. The RBA’s decision to leave its cash rate on hold at …
The news this morning that the unemployment rate is lower than previously thought increases the chances that interest rate cuts start a little later and are slower. After publishing experimental labour market data for the five months to November due to a …
5th February 2024
If Jerome Powell dampened talk of a March rate cut on Wednesday then the January payrolls report on Friday stamped it out for good. In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing dives into the …
2nd February 2024
First rate cut delayed until May Based on the steer provided by Fed Chair Jerome Powell halfway through this week’s press conference, we now expect the first Fed rate cut to come at the early-May FOMC meeting rather than in mid-March, with the Fed cutting …
The upside surprise to fourth-quarter GDP should, somewhat counterintuitively, make the Bank of Canada more confident that inflation is heading back to 2% because it implies that productivity has rebounded. Nonetheless, with the Federal Reserve pushing …
The Bank of England caused a lot of waves in the media and some ripples in the markets this week. But it hasn’t altered our thinking that lower inflation than the Bank of England expects will mean rates are cut from 5.25% to 5.00% in June and all the way …
RBA will soon be gearing up for rate cuts… CPI data released this week bolstered our conviction that the Reserve Bank of Australia will loosen policy in Q2, rather than in Q4 as the analyst consensus is predicting. For one thing, both headline and trimmed …
While leaving interest rates at 5.25% for the fourth meeting in a row today, the Bank of England sent a signal that the next move will be a cut, but it pushed back strongly against the idea that rates will be cut soon or far. Our forecast that inflation …
1st February 2024
Cuts may come earlier than the BoE implies While leaving interest rates at 5.25% for the fourth meeting in a row today, the Bank of England sent some soft signals that the next move will be a cut, but it pushed back more strongly against the idea that …
Powell suggests first rate cut more likely to be May Based on the surprisingly explicit steer provided by Fed Chair Jerome Powell halfway through today’s press conference, we now expect the first Fed rate cut to come at the early-May FOMC meeting rather …
31st January 2024
Fed drops its tightening bias The Fed left its key policy rate unchanged at 5.25% to 5.50% today, but dropped its tightening bias, keeping open the possibility of a rate cut at the next FOMC meeting in mid-March. Admittedly, the new policy statement warns …
High interest rates are still feeding through and we expect both GDP and employment to be flat over the next two quarters. As excess supply builds, a fall in inflation to the 2% target will leave scope for the Bank of Canada to cut interest rates sharply, …
The RBA will hold its fire at its meeting next week With inflation falling rapidly, the Bank is likely to dial back its hawkish bias Rate cuts will be on the agenda sooner than most anticipate We expect the Reserve Bank of Australia to leave rates on hold …
This page has been updated with additional analysis since first publication. With disinflation gathering pace, rate cuts are now in sight The weaker-than-expected Q4 inflation reading paves the way for the RBA to cut interest rates sooner than most are …
Our forecast that CPI inflation will fall below 1.0% later this year suggests that Bank Rate will be cut from 5.25% now to 3.00% rather than the low of 3.50-3.75% priced into the market, 10-year gilt yields will decline from 3.90% now to around 3.25% by …
30th January 2024
Inflation: Mission accomplished? We maintain a high conviction that core PCE inflation will be back to the 2% target by mid-2024. Despite claims that “the last mile will be the hardest”, core PCE prices have already been running at a 2% annualised pace or …
29th January 2024
Post-ECB and pre-Fed and Bank of England, Group Chief Economist Neil Shearing explains what data dependency means for central banks as they try to gauge when to begin rate cuts – and manage the market’s expectations about when those cuts will start. …
26th January 2024
It is hard to say which is more remarkable: that GDP growth accelerated last year following the Fed’s most aggressive tightening campaign in decades, or that core inflation nevertheless fell back to the 2% target in annualised terms over the second half …
The outlook for monetary policy all depends on whether the Bank of Canada is willing to act based on where it thinks shelter inflation is heading, rather than its current rate. The Bank’s communications suggest it is starting to move in that direction, …
Tokyo inflation won’t remain below 2% for long At its meeting on Tuesday, the Bank of Japan sounded increasingly confident that it will be able to meet its 2% inflation target on a sustained basis. And the minutes of the Bank’s December meeting released …
Much ado about nothing The headlines this week were dominated entirely by the Australian government’s decision to redesign the Stage 3 income tax cuts that are due to take effect on July 1 st . The long and short of it is that the government wants to …
Norges Bank today reiterated that it will leave its policy rate at 4.5% “for some time”. But we think that inflation will fall rapidly this year, so when the Bank does start to cut rates, it will do so more quickly than its forecasts suggest. The decision …
25th January 2024
We’ll be discussing the outlook for Fed, ECB and Bank of England policy in a 20-minute online briefing at 3pm GMT on Thursday 1 st February. (Register here .) No one to vote for a rate hike and tightening bias to be dropped Bank to push back against …
January’s flash PMI surveys suggest that GDP growth in advanced economies ticked up from a very weak pace at the start of 2024. And with price pressures still strong, central banks will probably continue to push back against expectations for rate cuts in …
24th January 2024
The Bank of Canada’s decision to drop its tightening bias today is the first step toward interest rate cuts, particularly as the Bank also hinted that it may be willing to look through elevated mortgage interest costs and rent inflation. We continue to …
