Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
After a big couple of weeks for the UK, the US, the world and global financial markets, we have revised some of our economics forecasts. Due to the policies in the UK Budget (bigger and sooner rises in government spending than taxes, see here ), we now …
8th November 2024
Tariffs won’t be a big drag We’re now assuming that Donald Trump will impose a 60% tariff on US imports from China and a 10% tariff on imports from all other countries next year. The US is Japan’s largest export destination, with shipments equivalent to a …
RBA need not fret geopolitical risks The RBA’s meeting this week came and went without much ado, with the Bank leaving rates on hold yet again and providing little in terms of new forward guidance. In fact, the RBA’s meeting was quickly overshadowed by …
As expected, after a run of stronger activity and inflation data since it started its rate cutting cycle with a 50bp reduction in mid-September, the Fed opted for a more modest 25bp cut at the conclusion of its two-day FOMC meeting, taking the fed funds …
7th November 2024
Fed slows pace of rate cuts As expected, after a run of stronger activity and inflation data since it started its rate cutting cycle with a 50bp reduction in mid-September, the Fed opted for a more modest 25bp cut at the conclusion of its two-day FOMC …
Watch a recording of our post-MPC online briefing here . While cutting interest rates from 5.00% to 4.75% today, the Bank of England implied that the Budget means rates will continue to fall only gradually. We agree and due to the Budget (and not the US …
Watch a recording of our post-MPC online briefing here . Budget means Bank may not cut rates as fast and far While cutting interest rates from 5.00% to 4.75% today, the Bank of England implied that the Budget means rates will continue to fall only …
The net fiscal loosening of £36bn (1.1% of GDP) in 2029/30 relative to previous plans unveiled by the Chancellor in the Budget means we now expect GDP growth of 1.8% and 1.7% in 2025 and 2026 respectively, compared to 1.5% in both years previously. But …
5th November 2024
Although the Reserve Bank of Australia maintained a broadly neutral stance at its meeting today, we still think it will start to lower interest rates as soon as February next year. However, with the labour market remaining resilient and productivity …
RBA will cut rates early next year Although the Reserve Bank of Australia maintained a broadly neutral tone at its meeting today, we still think it start to lower interest rates as soon as February next year. The Bank’s decision to leave rates unchanged …
While there were some positives to take from this week’s GDP data release, it still points to an economy stuck in a period of below potential growth. This reinforces our view that the Bank of Canada will cut by 50bp again in December. Third-quarter GDP …
1st November 2024
LDP loses majority for first time since 2009 We already indicated last week that the LDP might lose its majority in last Sunday’s House of Representatives election, but the fact that it failed to achieve a majority even once we include the seats of …
Stronger data point to a more gradual pace of loosening Fed will not surprise financial markets amid election uncertainty We see the terminal rate higher under Trump than Harris With the economy on strong ground, we expect the Fed to shift to a more …
31st October 2024
An interest rate cut from 5.00% to 4.75% seems nailed on for November It’s less clear whether BoE will quicken the pace and cut rates in December too We think cuts will remain gradual until mid-2025, with rates eventually falling to 3.00% The Bank of …
The government’s plan to trim the population will hit potential GDP growth and, given the headwinds for residential investment, reduce the chance of GDP reaching that lower potential level. Rents on new leases are set to fall, which presents downside …
BoJ Governor Ueda sounded more optimistic today and we’re sticking to our forecast of another rate hike at the Bank’s next meeting in December, though we don’t expect further tightening in 2025 . It came as no surprise that the Bank left its policy rate …
Bank of Japan will hike rates at December meeting The Bank of Japan retained its hawkish outlook when it kept policy unchanged at today’s meeting and we still expect a rate hike to 0.5% at its next meeting in December. It came as no surprise that the Bank …
RBA still on course to cut rates in Q1 2025 Today’s CPI release suggests that underlying inflation will be within striking distance of the RBA’s 2-3% target range by year-end. That should pave the way for the Bank to begin easing policy at its meeting …
30th October 2024
Perhaps the most frequently asked question of the Capital Economics team is around fiscal risks and their implications for financial markets. There were more incoming this past week as Donald Trump looked to be doing better in the polls and more details …
25th October 2024
Bank steps up the pace of loosening The Bank’s shift to a larger interest rate cut this week, which took the policy rate down to 3.75% (see here ), created some confusion among commentators. Some wondered why the Bank felt the need to act more …
October surprise? The result of Japan’s Lower House election should be clear by early Monday morning. The new prime minister, Shigeru Ishiba, called Sunday’s vote to take advantage of a revival in the government’s popularity since he replaced Fumio …
Inflation concerns appear misplaced At an event organised by the Peterson Institute this week, RBNZ Governor Adrian Orr suggested that the Bank was likely to be more circumspect about loosening policy going forward. The Governor argued that it was …
The government’s new immigration plan implies that the population will decline by 0.2% in both 2025 and 2026, a huge shift from population growth of almost 3% over the past two years. That means GDP growth is likely to remain subdued in the next couple of …
24th October 2024
The latest flash PMIs suggest that GDP growth got off to a weak start in Q4 in most major advanced economies. The surveys also imply a slowdown in both services activity and employment growth in October, meaning that the ECB and Bank of England may up the …
Renewed jitters in bond markets in part reflect a nagging sense that inflation isn’t whipped. Headline rates have come back to target, but central banks in many economies are faced with still-sticky core inflation readings that investors worry will force …
Strong US labour market should have soothed hard landing concerns Domestic data remain strong, but Bank has signalled that it won’t hike in October Bank will wait until December to hike again, but won’t tighten any further in 2025 The Bank of Japan …
We discussed the Bank’s policy decision in a Drop-In. You can view the recording here . The weak economic backdrop means we still see a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with …
23rd October 2024
50bp cut likely to be followed by another The weak economic backdrop means there is a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with another 50bp move at the next meeting in December. Our …
The September release of US non-farm payrolls was just the start of a run of strong employment releases in advanced economies this month, reigniting fears about pay growth and inflation. However, when putting a few quirks to one side and judging a range …
21st October 2024
Until now, all the focus has been on the Chancellor’s £22bn fiscal “black hole”. This week a different, bigger, number hit the headlines: a £40bn “funding gap”. Why the change? A crucial distinction is the time period they relate to. The £22bn “black …
18th October 2024
Donald Trump says ‘tariff’ is “the most beautiful word in the dictionary”. That’s up for debate – but what’s less arguable is that raising taxes on imports as much as the Republican presidential candidate is threatening would be bad trade policy, …
Firms will take higher labour costs on the chin With the Australian labour market remaining resilient as ever, financial markets have come around to our view that the Reserve Bank of Australia won’t cut interest rates before Q1 2025. That’s a notable …
Recessions fears continue to go unfounded, with the labour market still in good health after the strong September employment report. Prospects for October look weaker due to recent temporary disruptions but, with core inflation pressures heating up a …
17th October 2024
GDP growth and inflation have surprised to the downside of Bank’s forecasts That should persuade the Bank to enact a larger 50bp cut next week We expect another 50bp cut in December to take the policy rate to 3.25% by year-end The Bank of Canada has said …
16th October 2024
Balancing investing in the economy and fiscal credibility In her first Budget on Wednesday 30 th October the Chancellor, Rachel Reeves, faces the unenviable task of trying to achieve three objectives. First, being able to say there will be “no return to …
This page has been updated with additional analysis since first publication. Soft inflation data tee up another 50bp cut by the RBNZ The weaker-than-expected Q3 CPI data reinforce our conviction that the RBNZ will loosen policy more aggressively than most …
15th October 2024
We’ve long held the view that the Bank of Canada will need to cut rates at an aggressive pace – and market pricing is quickly aligning with our forecast for a 50-basis point move next Wednesday. But how far will the Bank go to ease policy, and how quickly …
It’s a rare thing for a press conference from China’s Minister of Finance to excite quite so much, but there were widespread hopes in markets that Saturday’s briefing from Lan Fo’an would finally provide the details of fiscal easing plans that had been …
12th October 2024
Hurricanes add to upside inflation risks Inflation risks more balanced Based on the combined CPI and PPI data, we calculate that the Fed’s preferred core PCE deflator price measure increased by 0.24% m/m in September which, at 2.9% annualised, is a little …
11th October 2024
The stronger labour market data makes the Bank of Canada’s decision in October a close call but, with upside inflation risks fading, and demand still very weak, we think the Bank will want to bring interest rates to a more neutral stance relatively …
The key activity and labour market indicators in the Bank of Canada’s surveys did not deteriorate last quarter, but they remain consistent with weak GDP growth, rather than the pick-up the Bank is looking for. The weak results mean that, despite the …
Easing monetary restraint is the need of the hour As was widely anticipated, the Reserve Bank of New Zealand cut its Official Cash Rate by 50bp at its meeting on Wednesday. But it’s worth noting that the Committee sounded rather dovish. In contrast to …
The latest data are consistent with our view that the world economy is in a soft patch. There are signs that global manufacturing is headed for recession and trade will soften. Consumers in DMs outside the US seem reluctant to spend, and banks in major …
10th October 2024
Fed split on whether to kick off with 50bp or 25bp rate cut last month The minutes of the mid-September FOMC meeting reveal that support among Fed officials for kicking off the loosening cycle with a bigger 50bp rate cut was a little weaker than the lone …
9th October 2024
Given the amount of signalling by Governing Council officials, it would be surprising if the ECB didn’t cut rates at its October meeting. But how far will the Bank go to ease monetary policy from here, and how quickly will it get there? Our Europe team …
We think the Chancellor will raise taxes in line with the planned £16bn (0.6% of GDP) a year increase in public spending at the Budget on 30th October. The main influence of this will just be a rotation in the shape of GDP growth away from consumer …
RBNZ hands down a dovish 50bp cut The RBNZ is likely to hand down a couple more 50bp rate cuts over the next few months . And we think it will end up cutting rates more aggressively than most are predicting. The RBNZ’s decision to cut its Official Cash …
With the price of crude oil continuing to climb higher, we could soon see a resurgence in fuel inflation in both Australia and New Zealand. However, if we’re right that any pickup in oil prices will prove short-lived and that second-round effects will be …
8th October 2024
Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. While the Bank of Japan has become more concerned about a global economic slowdown, the domestic conditions would warrant …
RBA softens its tightening bias Although the RBA is becoming more attuned to downside risks to its outlook, we still think it will wait until early next year to cut rates. The minutes of the RBA’s September meeting confirmed that the RBA has in fact …
