Fed’s Guidance Catches Up With Powell’s New Strategy: Week Ahead

(Bloomberg) -- Federal Reserve Chair Jerome Powell can expect questions this week on what extra steps the central bank will take to support growth, half a year since the economy locked down to contain the coronavirus.

Policy makers are not expected to change the current guidance in their statement on how long interest rates will stay near zero, though it could be a close call.

Officials have said rates will remain low until the economy has recovered from the pandemic, and is on track to meet the Fed’s twin goals for employment and price stability.

That language may be due for an update after Powell unveiled a new approach last month to meeting the Fed’s 2% inflation target, where it will now allow price pressures to run moderately above that level to make up for past periods of being too weak.

A number of officials have signaled they’re in no hurry to reinforce their policy guidance, and say investors have understood the message that rates will stay low for a long time.

What Bloomberg’s Economists Say...

“No policy action is expected at the upcoming September FOMC meeting or any Fed gathering in the near term. But the adoption of the new average inflation targeting framework will reverberate through the central bank’s ordinary channels of communication, including the policy statement and the post-meeting press conference.”

--Yelena Shulyatyeva, Andrew Husby and Eliza Winger. Read the full PREVIEW

The Fed announcement on Wednesday, with Powell’s press conference, marks the first of three major central bank decisions within a 24-hour period that may reinforce a message of entrenched easing across the Group of Seven. The Bank of Japan and the Bank of England are both due to set policy on Thursday.

Elsewhere, the OECD is scheduled to to announce updated economic forecasts for G-20 countries on Wednesday and central bankers in Russia, Brazil, South Africa and Indonesia also meet.

Click here for what happened last week and below is our wrap of what else is coming up in the global economy.

U.S. and Canada

In addition to the Fed, investors will also monitor August retail sales, out on Wednesday, and weekly claims for U.S. jobless benefits on Thursday.

In Canada, inflation data for August are due Wednesday.

• For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Europe, Middle East, Africa

The BOE will have to weigh the pace of the U.K. economy’s rebound against the increasing risk of mass unemployment and a messy breakup with the EU. Most economists don’t expect a change in policy on Thursday, but will be watching closely for any indication of more bond buying toward the end of the year. Inflation and jobless data earlier in the week might influence officials’ decision.

Bloomberg Economics’ BOE Spectrometer

The Polish central bank is expected to keep interest rates unchanged on Tuesday, while South Africa could see room for another interest-rate cut on Thursday after the economy shrank more than forecast in the second quarter. With the ruble sliding and foreign investors fleeing, Russia’s central bank could suspend its easing cycle on Friday.

• For more, read Bloomberg Economics’ full Week Ahead for EMEA

Asia

India’s CPI is set to remain above the central bank’s target range in August, according to economists ahead of data due Monday. China on Tuesday will release industrial production, investment, retail and unemployment data that’s expected to show the supply-led recovery continues to gather momentum.

The Bank of Japan will likely opt for stability and keep policy unchanged at Thursday’s meeting, with Yoshihide Suga likely to take over from Shinzo Abe as prime minister and the job of digging the economy out of its worst slump in decades.

Abe’s Approval Ratings

The central banks of Taiwan and Indonesia are also set to meet on Thursday, while Australia is due to release employment data for August.

Rounding out the week, Japanese August inflation data comes into focus on Friday after prices flat lined a month earlier.

• For more, read Bloomberg Economics’ full Week Ahead for Asia

Latin America

Brazil’s central bank will likely bring its current 13-month easing cycle to an end on Wednesday. The key rate is already at a nominal historic low of 2%, but it’s also now negative in real terms. While Latin America’s biggest economy appears to be past the worst of the pandemic-induced recession, the recovery seen to date owes much to fiscal stimulus the government’s now winding down.

Earlier in the day in Chile, the minutes of the central bank’s Sept. 1 meeting will likely cement expectations that policy makers will keep the key rate at 0.5% for the foreseeable future.

Colombia was still under a strict national lockdown in July, so the reports for that month’s retail sales, industrial output and economic activity posted this week will be better than in previous months, but still uniformly negative.

• For more, read Bloomberg Economics’ full Week Ahead for Latin America

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