The month of September delivers a monetary policy scenario divided into two blocks: central banks that raise rates and those that cut them to tame inflation.
Fed ready to act aggressively
The Stock market shock early August It may already seem like a distant memory, but some key market metrics have changed over the summer: for example, the expected trajectory of the Fed is now much more dovish. In Jackson Hole, Jay-Powell has chosen not to stick to a cautious and gradual approach, clearly stating that the Fed has “ample” room to maneuver to take action and will not necessarily wait for the most obvious signs of a downturn to cut aggressively. However, he explains Gilles MoecChief Economist of AXA Investment Managerswhile we know that the Fed stands ready to support the economy decisively, it is not yet a given that it will have to do so.
Waiting for the Job Report
The data on the pay slips of August, which will be published this Friday, will obviously be important, but so far the requests for unemployment benefits remained moderate, consistent with the view that the continued increase in the unemployment rate is essentially supply-side driven, while the flow of data on economic activity in the third quarter remains decent.
“We continue to think – the expert underlines – that The Fed will only make two cuts this yearalthough there remains a significant risk of a third cut. In the meantime, the advantage of Kamala Harris in the polls may have helped bring the 10-year yields of the United States below 4%, as his victory would likely usher in a less wasteful fiscal policy compared to Donald Trump and, of course, a smaller increase in tariffs. It is still a very tough competition.”
The ECB has run but now it is pulling the brakes
Paradoxically, while The ECB has chosen not to wait for the Fed and cut as early as June, since then his narrative has become very cautious about next steps. The latest data stream should, however, make it more easy to cut in September. However, adds the analyst, we want to point out how some influential members of the Board, such as Isabel Schnabelremain cautious. Of course they are right about inflation – the good news is very recent indeed – but we are more worried than they are about the risks to growth.
For now, the nice bounce of the purchasing power triggered by the wedge between wage growth and inflation is not being spent by households. Add to the mix the slowdown in global demand and the prospect of fiscal tightening, “we believe that the ECB It shouldn’t take too long to bring the policy rate to neutralitybut this is a normative view and we need to pay attention to the signals from the hawks. We do not expect more than three 25bp cuts in total this year,” the expert concludes.
Japan: Rates expected to rise again
Further interest rate hikes are expected in Japan, if all goes according to the central bank’s target, the governor of the Bank of Japan (BoJ) said. Kazuo Uedasubmitting a paper to a government panel suggesting that the central bank continue to increase interest rates whether the economy and prices behave as the BoJ expects.
Ueda submitted the document to explain the monetary policy decision of end of July to the Council on Economic and Fiscal Policy, a government panel chaired by Prime Minister Fumio Kishida.
During its July meeting, the Japanese central bank announced the first increase in the cost of moneyending the era of zero/negative rates. The Monetary Policy Committee announced it would raise its key rate by 25 basis points to around 0.25%, the highest since 2008, from its previous range of zero to 0.1%, and also outlined a plan to reduce its asset purchase program.
