The world’s largest economy is likely to expand at its fastest pace in nearly two years in the third quarter, buoyed by staunch support from U.S. consumers, posing a challenge to Federal Reserve officials as they debate the need for further policy tightening.
According to the median forecast in a Bloomberg survey of economists, gross domestic product grew at an annualized rate of 4.3% from July to September. The growth shows that the United States remains a global economic power as Europe stagnates and Asia contends with a beleaguered China.
Personal consumption is the main engine of the US economy and is expected to grow at a rate of 4%. After nearly two years of raising interest rates, the elasticity of demand is testing the policy skills of Fed officials. Although inflation is far from its peak, price pressures are still growing at almost twice the target.
Thursday’s GDP report was not enough to prompt the Federal Reserve to raise interest rates in November, but continued spending momentum in the fourth quarter could raise the prospect of further tightening early in the year.
“Additional evidence that economic growth continues to be above trend, or that labor market tensions no longer ease, may put inflation at risk of further progress and may require further tightening,” Fed Chairman Powell said at the Economic Club. Tight monetary policy.” New York on Thursday.
Friday’s September income and spending data will provide a sense of the momentum of household demand and inflation ahead of the fourth quarter.
Forecasters expect the core personal consumption expenditures price index, one of the Fed’s preferred indicators because it excludes often volatile food and energy costs, to rise 3.7%. That would be the smallest annual gain since May 2021 and consistent with modest progress in inflation.
Bloomberg Economics’ view:
“With consumers accelerating spending to an unsustainable 4.2% in the summer travel and entertainment frenzy, real GDP annualized growth in the third quarter may surge to 4.7%… Given rising inflation, high interest rates and students returning to school, we expect Consumption will slow in the fourth quarter – loan repayments. The Fed’s tightening cycle will take time to hit the real economy, but we believe rising mortgage rates, credit card debt and commercial loan defaults will hit growth this quarter.”
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists.For the full analysis, click here
Turning north, the Bank of Canada’s interest rate decision on Wednesday will provide new forecasts for inflation, growth and economic risk patterns. Governor Tiff Macklem is widely expected to continue his pause on interest rate hikes while threatening that further hikes may be needed.
Elsewhere, the European Central Bank is also likely to keep interest rates on hold, Israeli officials take their first decision since the war began, Chilean policymakers are likely to cut borrowing costs and their Russian and Turkish counterparts are likely to raise interest rates sharply.
Asia
The Standing Committee of the National People’s Congress, China’s top legislative body, will meet on Tuesday and is likely to discuss proposals to issue new local government debt early and appoint key personnel.
China is also due to release industrial profit data that could show a continued recovery, as investors keep a close eye on the state of the world’s second-largest economy.
In Japan, Prime Minister Fumio Kishida is likely to consider the results of a special election held over the weekend, with disappointing polls likely to encourage further spending.
Tokyo inflation data this weekend may provide insight into whether Japan’s price growth continues to slow, while investors are likely to keep a close eye on rising yields and a weaker yen as the next Bank of Japan policy meeting approaches. The end of the month.
Early trade data from South Korea on Monday, as well as the country’s third-quarter growth data, will provide a snapshot of global demand conditions.
Elsewhere in the region, Singapore released inflation data and Thailand released a trade report.
RBA Governor Michelle Bullock spoke on Tuesday, a day before the country’s latest quarterly inflation data is released. They could be crucial in deciding whether the Reserve Bank of Australia resumes raising interest rates at its Nov. 7 meeting.
Europe, Middle East, Africa
Britain is due to release its second tranche of labor market data on Tuesday, which may confirm the weakening momentum.
On the same day, UK and euro zone purchasing managers’ indexes were likely to show continued contraction in manufacturing in October, but the pace of deterioration was likely to slow.
Other euro zone reports next week include consumer confidence on Monday and Germany’s Ifo index two days later, which are expected to show only slight improvement in business confidence in Europe’s largest economy.
Spain’s gross domestic product data released on Friday was the first time third-quarter gross domestic product data was released by a major member of the region. The report is expected to show output overcame weakness elsewhere, supporting expansion in the 10th quarter.
On Thursday, policymakers led by European Central Bank President Christine Lagarde are expected to keep borrowing costs unchanged for the first time since June 2022, although they may signal that tightening can be resumed if needed. Officials are also likely to discuss the prospects of reducing bond holdings in the future.
Meanwhile, some of Europe’s biggest fund managers said traders were betting on European Central Bank The rate hike has been completed.
A series of other key decisions will be made by central banks across the region:
- Israeli officials on Monday reviewed policy for the first time since the war began. The shekel is near eight-year lows ahead of a possible ground invasion of Gaza, and the central bank has said its focus is on currency stability, meaning a rate cut may be out of the question.
- Hungarian officials on Tuesday prepared to start slowing the easing cycle after five consecutive monthly declines to 13%. This remains the highest rate in the EU to date.
- Turkey’s inflation rate exceeded 60% last month, the fastest rate this year, and it is expected to raise interest rates again sharply on Thursday. Although the central bank more than tripled its key interest rate to 30% in four steps, price pressures remain high.
- Russian policymakers are likely to raise borrowing costs for the third consecutive time on Friday. With officials forecasting inflation of 6% to 7% this year, price pressures could influence the decision, especially as a plunge in the ruble prompts the government to reimpose capital controls.
The week ends with a series of sovereign credit reviews. Countries such as Belgium, Botswana, Bulgaria, Finland, France, Italy and Sweden all have assessments arranged by major rating companies.
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Mexico’s biweekly inflation report on Tuesday should show both the headline and core reports cooling slightly, but still above the central bank’s 3% target.
Even so, a Bank of Mexico board member recently said that the upcoming decision will be “very data-dependent” and that policymakers are willing to delay the start of the easing cycle until mid-2024.
Brazil, the region’s largest economy, may have seen mid-month inflation fall slightly from the 5% rate reported in mid-September, leading the central bank to expect a further 50 basis points of interest rate cuts before the end of the year.
Argentina released proxy GDP data for August on Tuesday. Triple-digit inflation and tight currency and import controls are pushing Argentina into its sixth recession in a decade, with some analysts predicting a second year of negative growth in 2024.
Mexico also released proxy GDP data for August, which should show the 22nd consecutive month of year-on-year growth, as well as September’s unemployment rate. Minimum wage increases and a strong domestic economy have led to tight labor markets.
In Chile, with inflation stable and policymakers seeing growth below potential, the central bank is almost certain to cut interest rates for the third time in a row from the current 9.5%.
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