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    Bloomberg Daybreak Weekend: Central Bank Decisions

    enSeptember 16, 2023

    Podcast Summary

    • Fed Expected to Pause on Interest Rates, Inflation Data Shows Mixed SignalsThe Fed may pause on raising interest rates but could still increase if inflation persists. Inflation data shows conflicting signs, with headline numbers rising but core inflation showing progress.

      The Federal Reserve is expected to pause on raising interest rates at their upcoming meeting this week after reaching a 22-year high of 5% in their last decision. However, if inflation continues to rise, the Fed could potentially raise rates further. The latest inflation data showed an increase in headline numbers due to rising oil and gasoline prices, but the core inflation, which the Fed focuses on, showed some progress in reducing inflation. The consensus on Wall Street is that the Fed will not make any surprise moves and will likely maintain their current rate. Global leaders will gather in Doha for the Qatar Economic Forum in May to make new connections and gain insights. Stay tuned for more updates on these and other economic developments.

    • Economy Faces Challenges But Shows Signs of ResilienceThe economy is experiencing a slowdown, but the labor market remains strong and consumers continue to spend, particularly on essential items. However, high mortgage rates are freezing the housing market, leading to fewer sales and less demand for related goods.

      The economy is experiencing a slowdown, but there is still progress. The labor market remains strong, despite some labor strife from strikes in certain industries. Retail spending held up well in August, despite rising fuel prices, and housing continues to be a problem due to high mortgage rates. The Fed is closely watching these developments as they decide whether to raise interest rates further to keep the momentum going. Despite inflation, consumers continue to spend, particularly on back-to-school items. However, the housing market remains frozen due to high mortgage rates, leading to fewer sales and less demand for related goods. Overall, the economy is facing challenges, but there are signs of resilience from consumers and some industries.

    • Rising housing costs and insurance rates put pressure on consumers and the economyHousing costs and insurance rates have reached an all-time high, affecting consumers and potentially certain sectors, while the overall macroeconomic impact might be minimal.

      The current housing market is facing challenges due to rising mortgage costs and insurance rates, reaching an all-time high of $2,632 a month. This trend, coupled with increased costs for car insurance and used cars, is putting pressure on consumers and the economy. However, the impact on the macroeconomy might not be significant as production and consumer spending usually bounce back quickly after short-term disruptions, such as strikes in the automotive industry. Instead, the effects are more likely to be felt in specific sectors, like equities, raw materials, and advertising revenue. As the UN General Assembly meeting approaches, leaders from around the world will gather in New York to discuss global issues, including Russia's invasion of Ukraine, tensions between the US and China, and Iran's nuclear program. These topics are expected to dominate the conversation during the annual event.

    • UN General Assembly: A Crucial Venue for Global DiplomacyThe UN General Assembly provides a platform for world leaders to address pressing global issues, including Russia's invasion of Ukraine, China-US relations, and Iran, despite complications from permanent members like China and Russia.

      The upcoming UN General Assembly will be a significant platform for global diplomacy, with key issues such as Russia's invasion of Ukraine, China-US relations, and Iran on the agenda. President Biden aims to rally international support against Russia's actions and demonstrate US presence despite the absence of Putin and Xi Jinping. China and Russia, as permanent members of the UN Security Council, complicate the situation, hindering collective action on issues like Ukraine. However, the UN General Assembly still serves as a crucial venue for dialogue between world leaders, and sideline meetings may yield important progress on various issues. The potential Iran hostage swap and release of frozen funds could also be a major topic, with differing perspectives on their intended use.

    • UNGA: Biden and Netanyahu's Diplomatic Meeting Amidst Tensions and Potential New AgreementsDuring UNGA, Biden and Netanyahu will meet amidst disagreements over Israeli policies, potential new agreements with Gulf countries, and ongoing support for Ukraine.

      The upcoming UN General Assembly (UNGA) will see significant diplomatic activity, including a much-anticipated meeting between U.S. President Joe Biden and Israeli Prime Minister Benjamin Netanyahu. Tensions between the two leaders are high due to disagreements over Israeli policies, particularly the judicial overhaul plan. Additionally, the U.S. is working towards normalizing relations between Israel and Saudi Arabia. Netanyahu is also scheduled to meet Elon Musk. Regarding the Abraham Accords, the U.S. aims to extend these normalization deals with Gulf countries but acknowledges that significant work remains before any new agreements can be reached. At UNGA, President Biden will also address the ongoing support for Ukraine, which may face challenges as not all countries support continued funding for the conflict.

    • Ukraine aid in US uncertain amid House debates and UK economic concernsThe future of Ukraine aid in the US is uncertain as the House debates different approaches, potentially linking it to border concerns and asylum provisions. Meanwhile, the UK economy is showing signs of a recession and the Bank of England is expected to continue raising interest rates to combat inflation.

      The future of Ukraine aid in the US is uncertain as the House considers different approaches, potentially linking it to border concerns and asylum provisions to gain support from the hard right flank of the Republican party. Meanwhile, Ukrainian President Zelensky continues to advocate for peace formula plans and plans to meet with President Biden. The Bank of England is expected to continue raising interest rates, despite signs of economic slowdown, with inflation remaining high in the UK compared to other major economies. The UK economy is showing signs of losing steam, and economists expect it to move into recessionary territory in the coming months.

    • UK Economy: Smaller Recession, Bigger Impact from Tightening Measures?The UK economy is projected to experience a smaller recession than previous ones, but significant tightening measures could lead to a larger impact. Inflation remains a concern, and its trajectory will impact the economy's resilience.

      The UK economy is expected to experience a recession, with a predicted fall in GDP at around 1%, according to economist Dan. This is much smaller than previous recessions, such as the financial crisis, which saw a fall of over 6% in GDP. However, the Bank of England has implemented significant tightening measures, resulting in over 500 basis points of interest rate hikes. This could lead to a larger impact on the economy than current predictions suggest. The recent revision to the official data from the Office for National Statistics (ONS) post-pandemic has given the government reason to be optimistic, as it shows the economy was less scarred from the pandemic than initially thought. The policies put in place, particularly the furlough scheme, are credited for this. Looking ahead, the impact of high inflation and interest rates on the economy is yet to be seen, as there is no data available for 2022 and 2023. The economy's resilience in the face of these factors remains uncertain. In terms of inflation, it remains to be seen if the UK is experiencing a meaningful move towards lower prices as flagged by the Bank of England. The trajectory of inflation remains a significant concern for the economy.

    • Rising energy prices and housing market concerns in the UK economyEnergy prices causing inflation to rise, housing market projected to fall by 10%, Bank of England monitoring closely, September rate hike expected

      The energy prices and housing market are two major concerns in the current economic landscape, particularly in the UK. The impact of rising energy prices on inflation is expected to continue, despite taking longer to reflect in the Consumer Price Index (CPI) due to the way household energy bills are calculated. The housing market, which is highly sensitive to interest rates, is showing signs of worsening, with house prices projected to fall by about 10% cumulatively. This could lead to a decrease in consumer confidence and spending if people feel less well-off due to falling house values. The Bank of England is keeping a close eye on the housing sector, and there seems to be a shift in focus from the pace of rate hikes to the level of rates and their restrictive impact on the economy. The September interest rate decision is expected to result in a rate hike, with an 80% chance according to the market.

    • BOJ considering ending negative interest rates and adjusting yield curve control policyThe BOJ may normalize its monetary policy as inflation rises above target, potentially ending negative interest rates and adjusting yield curve control policy. Economists expect these changes to occur after abandoning or raising the current 10-year yield target.

      The Bank of Japan (BOJ) is considering ending its negative interest rates and adjusting its yield curve control policy as inflation in Japan continues to rise above the BOJ's target. The BOJ has been maintaining ultra-easy monetary policy for decades due to the threat of deflation, but recent inflationary trends have increased urgency for normalization. Governor Kazuo Ueda has hinted at the possibility of ending negative interest rates in the first half of next year, but economists expect this change to come after the abandonment or raising of the current 10-year yield target. The BOJ tweaked its yield curve control policy in July 2022, and the potential for further adjustments comes as the Japanese yen has weakened, causing difficulties for businesses and consumers with higher import prices. The BOJ intervened to prop up the currency in September 2021, but intervention is less likely this time due to less sudden movements in the yen.

    • BOJ Governor may discuss currency intervention with governmentBOJ Governor Haruhiko Ueda could collaborate with the Japanese government on currency intervention, shifting from past practices where intervention was solely under the Ministry of Finance's control. The last intervention was at 152 yen against the dollar, making a new intervention unlikely before that level.

      The Bank of Japan (BOJ) governor, Haruhiko Ueda, may be more open to discussing currency intervention and collaborating with the Japanese government on supporting the yen. This is a shift from the past when intervention was solely under the Ministry of Finance's jurisdiction. The last intervention occurred around the 152 yen mark against the dollar, making it unlikely for Japan to intervene before reaching that level. However, it's important to note that monetary authorities are reluctant to discuss specific levels. For more insights, tune in to Bloomberg Daybreak Asia.

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