Fed Poised for Summer Pause as Congress Talks: Eco Week Ahead
(Bloomberg) -- Federal Reserve officials will confront clear signs the U.S. recovery is stalling when they meet July 28-29, though they will probably hold fire on additional stimulus while Congress debates more fiscal aid.
Chair Jerome Powell and his colleagues are expected to keep interest rates near zero and repeat their guidance they’ll stay that way until the economy has shrugged off the coronavirus and is back on track.
A rise in jobless claims and other indicators of activity point toward the economy flattening after infections surged in some southern and western states. At the same time, U.S. lawmakers are trying to hammer out another round of pandemic relief before current support expires at the end of the month.
Internal Fed debate on the need for a more forceful commitment to zero rates probably won’t surface in the statement released at Wednesday. But analysts surveyed by Bloomberg see that shift coming as soon as September.
Powell can expect questions on what to anticipate, as well as a move to make the Fed’s asset purchases explicitly about spurring growth, at his press conference.
What Bloomberg’s Economists Say:
“Federal Reserve policy makers can meet in the week ahead confident that they have stressed the importance of fiscal support -- past and future -- in determining the strength of the recovery. However, Congress and the administration have not shown a similar sense of urgency ahead of the imminent expiration of expanded jobless benefits.”
--Andrew Husby, Eliza Winger and Yelena Shulyatyeva. Read the full preview
Click here for what happened last week and below is our wrap of what else is coming up in the world economy.
U.S. and Canada
The widespread economic devastation in the U.S. wrought by the coronavirus pandemic will come to bear this coming week when the government issues its first estimate of second-quarter gross domestic product. The median projection of economists calls for a 35% annualized decline, the steepest slide in the post-World War II era as the health crisis brought nonessential-business activity to a standstill.
While other reports are expected to show stronger durable goods orders and personal spending for June as the economy reopened more broadly, July data have shown signs of softening. Weekly jobless claims are expected to stay elevated, while two measures of consumer confidence for the month are projected to deteriorate as Covid-19 cases mount in the nation’s largest states.
Canada is set to publish GDP readings for May on Friday.
- For more, read Bloomberg Economics’ full Week Ahead for the U.S.
The economic clouds hanging over Hong Kong’s struggling economy continue to darken as a new wave of the coronavirus sparks fresh restrictions. Data Wednesday is set to show second quarter growth plunged again after an 8.9% year-on-year slump in the first quarter.
The first official reading of China’s economic pulse in July comes Friday with the release of purchasing managers reports. With economists upgrading their assessments for the full year, the readings will be closely watched for signs the recovery is holding momentum.
- For more, read Bloomberg Economics’ full Week Ahead for Asia
Europe, Middle East and Africa
A slew of euro-area economic output figures on Thursday and Friday are set to show the extent of the damage inflicted by coronavirus lockdowns in the second quarter.
France, Spain and Italy probably contracted more than 15%, while the euro-area reading is set to show a 12% slump, and Germany a still-eye-watering 9%. Numbers for Austria, Belgium, Lithuania, Latvia and the Czech Republic are also due.
Forward-looking indicators such as Germany’s Ifo index due on Monday may signal that a rebound is already under way, though unemployment is still rising and demand remains far too weak to ignite consumer prices. Data for July will probably confirm that, with an inflation rate much closer to zero than the ECB’s target of nearly 2%.
Ghana’s central bank will probably hold rates on Monday after inflation exceeded the target range for a third straight month in June.
Also on Monday, the IMF’s executive board is scheduled to consider South Africa’s request for Covid-19 funding after the New Development Bank and the African Development Bank approved loans to the country. In Kenya, some analysts see room for further easing on Wednesday, but following the shilling’s drop to a record, the central bank may opt to hold.
- For more, read Bloomberg Economics’ full Week Ahead for EMEA
Labor market reports this week from Brazil, Chile and Colombia will show unemployment rates are surging higher as millions of workers lose their jobs. Given that most Latin American economies feature large informal sectors, government statistics almost certainly understate the scope of the crisis.
On Thursday, Mexico’s preliminary reading of second-quarter GDP will likely show the economy shrank 20% from a year earlier. The IMF forecasts a 10.5% contraction for 2020, which would be the deepest recession in nearly a century.
On Friday, Colombian policy makers are expected to cut their key rate for a fifth straight meeting to 2.25%, the lowest level since the early 1990s.
- For more, read Bloomberg Economics’ full Week Ahead for Latin America
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