The US Federal Reserve is set to announce its long anticipated decision on interest rates this Thursday, a meeting long thought to mark the point at which the US tightening cycle would begin.
However, stock market wobbles, non-existent inflation and weaker expectations on the outlook for global growth have damped this view. Fed Funds futures prices now put the chance of a rate rise at a little over 20 per cent.
Ranko Berich, head of market analysis at Monex Europe, comments on Thursday’s decision: “Ultimately, the evidence is so closely balanced that members may end up voting on ideological lines. Our expectation is that the hawks will be in the minority: with the evidence so finely balanced, we believe the Fed is likely to follow the Bank of England’s lead and err on the side of caution.”
The Fed also releases longer term economic projections alongside the rate announcement. In June, 10 of the 17 policymakers believed two or more 25 basis point increases would be appropriate this year. Thursday’s projections are expected to show the majority now expect only one rate rise this year, as well as a slower pace of rate increases throughout 2016 and 2017.
Pre-empting Thursday’s rate announcement we get August updates to US inflation on Wednesday and also retail sales and industrial production on Tuesday. Consumer prices are expected to have increased by 0.2 per cent year on year in August, unchanged from July’s growth.
Lower energy costs have boosted retail sales in recent months and further growth is expected over August. Analysts expect a gain of 0.3 per cent from July. Industrial production is expected to have slipped in August after a stronger than expected reading in July, analysts expecting a decline of 0.2 per cent month on month.
The Chinese economy is one of the biggest sources of uncertainty in the current global outlook and over the weekend updates become available for some key activity indicators.
Industrial production, retail sales and investment data for August should all be available for Monday morning. Analysts expect industrial production to show some improvement while retail sales and fixed asset investment remain in line with the previous month’s readings, suggesting that the slowdown seen in recent months may have found a bottom.
UK inflation data for August are released on Tuesday. Consumer price inflation jumped to 0.1 per cent year on year in July, buoyed by increases in clothing and air fare prices. Analysts do not believe this marks the start of a trend and thin CPI will drop back to zero growth year-on-year in the August reading.
Labour market data for the UK are out Wednesday when the unemployment rate is expected to remain unchanged at 5.6 per cent. Wage growth is expected to tick up to 2.9 per cent year on year from 2.8 per cent in July.