- All eyes will be on the Federal Reserve policy meeting this week as the central bank is poised to pivot and lower interest rates for the first time in over four years. The Fed has a dual mandate linked to price pressure and employment and with inflation looking increasingly under control and ongoing weakness in the labor market, officials on the FOMC are expected to reduce the benchmark lending rate by at least 25bp, with some analysts still calling for a more aggressive 50bp cut. The size of the cut remains on a knife edge and its worth remembering that many thought that the Fed was behind the curve in July, so would a 25bp reduction just keep them there? Ahead of the announcement on Wednesday we await Retail Sales data tomorrow, which are expected to fall on a drop in auto sales. Industrial Production data is also out on Tuesday, we also have housing data throughout the week, Philly Fed Outlook and Initial Claims on Thursday.
- It is a busy week for the UK, with key inflation data due to be released on Wednesday ahead of the BoE policy meeting Thursday. Headline inflation is expected to have accelerated in August, as predicted by the central bank, driven by a pickup in services inflation. Price pressure remain a headache for the MPC, and rate setters are expected to keep interest rates on hold this week – a signal that they are not fully convinced that the battle against inflation has been won. Retail Sales on Friday are expected to tick higher as the warmer weather (remember that?) is expected to have boosted spending on summer clothing.
- Final euro area CPI inflation is out on Wednesday and will likely show that inflation has fallen close to the ECB’s 2% target in August. The German ZEW is also released and is expected to show that Europe’s largest economy remains in the doldrums with the industrial sector looking wobbly as weakness in China and increases in global trade costs continue to weigh on the outlook.
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