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19 September 2022
- Although it looked promising a month ago, investors will not see the Fed easing its aggressive monetary policy so soon. In fact, instead of a slowdown in inflation, we saw unexpected price increases in August, and year-on-year inflation was also above expectations. Year-on-year, core inflation even rose from 5.9% to 6.3% compared to the previous month. With energy and fuel prices seeing significant declines, the inflation data shows that higher price pressures are filtering through to other areas of the economy, such as housing or health services sectors.
- As this is the last major data point before Wednesday’s FOMC meeting, speculation is beginning to circulate that central bankers may raise rates by as much as 1%. Thus, rapidly rising debt costs will likely eliminate the chance of a soft landing for the economy, and a recession may be around the corner.
What to watch out for this week
- Central banks will play a significant role in the macro calendar in the new week. Initially everyone will anxiously await how the Fed will react to the surprisingly strong inflation on Wednesday. A 1% rate hike, which would have been unthinkable just a few months ago, is already in play.
- After a week’s delay, the Bank of England will also decide on rates. A 0.5% rate hike is expected to continue here as well, but analysts do not rule out the possibility of a 0.75% hike.
- On Thursday, rates will also be decided in Switzerland or Norway, and the Bank of Japan, which is no longer comfortable with the extremely weak yen at a 24-year low, may also surprise.
- Data on purchasing managers’ indices in manufacturing and services will be expected. In the euro area, in particular, the numbers have been below 50 for two months, which means that we may see a recession in Europe sooner than expected, due to the uncertainty in the energy market.
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