Powell Takes Lead in Round of Rate Hikes Worldwide: Eco Week

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Federal Reserve Chair Jerome Powell has as good as promised that U.S. officials will deliver a 50 basis-point interest-rate increase, the biggest such adjustment in more than two decades, but he's been less clear about how much further they'll need to go.

In a week that's likely to be marked by a global round of rate hikes, Fed officials are expected to raise their benchmark on Wednesday, and may also announce they'll start letting the central bank's bloated balance sheet start to shrink at a pace that will quickly step up to $95 billion a month.

Powell may use his post-meeting press conference to cement expectations of another half-point move in June, while providing more clues on what will follow as officials confront the hottest U.S. inflation in four decades.

Meantime, the other part of the Fed's mandate -- the labor market -- remains robust. Figures on Friday are expected to show employers added about 400,000 jobs in April. Unemployment is projected to edge down to 3.5%, matching the lowest since 1969, and average hourly earnings are forecast to post another solid advance.

Among other key U.S. economic data next week are surveys on manufacturing and services in April, as well as the job openings report for March.

Powell has backed “front-loading” policy moves to get price pressures back down to the Fed's 2% inflation goal. But it's unclear if he's willing to say that means pushing rates this year into restrictive territory, or in other words above the neutral level that neither speeds up nor slows the economy. Officials see that rate at about 2.5%.

Other central bankers, including James Bullard, have publicly backed going higher than neutral if price pressures fail to ease as expected. The St. Louis Fed president backs raising rates to 3.5% and has said a 75 basis-point increase should be part of the debate -- a position that several of his colleagues have pushed back against.

What Bloomberg Economics Says:
“The latest wage data are already prompting markets to contemplate a further 75bps of tightening in June. We think that would be premature, given early signs that U.S. inflation is peaking...The latest consumer spending report showed a modest deceleration in core PCE inflation, and faster services spending at the end of 1Q will release some pressure on goods prices.”
--Anna Wong, Yelena Shulyatyeva, Andrew Husby, Eliza Winger, economists. For full analysis, click here

Elsewhere, at least a dozen other central banks are due to deliver policy decisions in the coming week, with multiple rate hikes expected. They may vary in size from 15 basis points anticipated by economists for Australia, to a quarter-point in the U.K., to whole percentage points in Brazil and Poland.

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

Asia

China's purchasing managers' index released Saturday showed that economic activity contracted sharply in April in the face of Covid-related shutdowns. Factory output and services demand were both hit. Regional reports due in the coming week may again show the ripple effects of supply snarls.

After a quicker-than-expected acceleration in inflation, Australia's central bank may be forced to raise rates in the middle of an election campaign when it meets on Tuesday. It'll also update markets on plans for the bonds it amassed during its almost two-year quantitative easing program.

Governor Philip Lowe will have a chance to expand on his thinking and update forecasts in Friday's quarterly statement on policy.

The Fed's widely anticipated tightening will be closely watched in Asia, with the Hong Kong Monetary Authority set to respond on Thursday as it mirrors U.S. policy.

Japan has a three-day holiday, then returns Friday with Tokyo prices data that may show an uptick on higher fuel costs.

For more, read Bloomberg Economics' full Week Ahead for Asia

Europe, Middle East, Africa

The Bank of England's decision on Thursday will be the region's highlight, with most economists expecting the the key rate to be raised for a fourth consecutive meeting to 1%, the highest level since 2009.

Potential minority votes for an even bigger, half-point increase could add color to the outcome, and the possibility of an announcement of asset sales from its quantitative easing program may also draw investor interest.

Other central banks will be tightening too. Iceland may be first, with an increase of at least a half point on Wednesday. The next day, the Czech central bank is expected to deliver a similar move, while Poland's is seen likely to be twice as big.

By contrast, Norwegian officials will probably keep their rate on hold on Thursday but signal that a planned string of rate hikes remains on track, with the next one set for June.

On Friday, meanwhile, Sweden's Riksbank will publish minutes from its April 28 meeting that delivered a historic policy pivot with a sudden rate increase.

Euro-region data include unemployment on Tuesday and German industrial production at the end of the week, which will show the impact of supply shortages created by the war in Ukraine.

South African data on Tuesday will likely show manufacturing sentiment fell for the first time in four months, after the worst flooding in decades in KwaZulu-Natal province, home to the nation's biggest port.

On Thursday, Turkish data is expected to show another acceleration in inflation on the back of rising food and energy costs, as the central bank continues to implement the unorthodox low interest-rate policy favored by President Recep Tayyip Erdogan.

For more, read Bloomberg Economics' full Week Ahead for EMEA

Latin America

In answer to one of Latin America's bigger questions of the moment -- are we there yet on inflation? -- look for April readings out of Peru, Colombia and Chile to offer up a firm “no.” The surge in consumer prices seen in all three economies over the past year had been showing little sign of slowing, even before Russia's invasion of Ukraine and its dislocation of various commodities markets.

The minutes of the Colombian central bank's meeting of Friday, where a third-straight 100 basis point hike and sixth straight overall raised the key rate to 6%, are keenly anticipated, especially after March's seemingly dovish decision.

In addition to inflation data, Chile posts it GDP-proxy data for March, and business confidence surveys. The central bank on Thursday is widely expected to extend a record tightening cycle with a 100 basis point increase to 8%, with yet more on tap.

Brazil's central bank on Wednesday is all but certain to raise its key rate for a 10th straight meeting, the longest tightening cycle since 1999. Most analysts see a second straight 100 basis-point increase, which would push the key rate to 12.75%.

Also on tap from Brazil, a raft of reports -- many delayed for weeks by striking central bank workers -- will include economic activity, budget, trade, current account, foreign direct investment, lending and industrial production.