Will the new Fed Chair, Jerome Powell, lead the Fed to increase its interest rate hike forecast for this year?
The key event next week will be new Fed Chair, Jerome Powell, testifying to the House Financial Services Committee following the release of the semi-annual monetary policy report this Friday. The tone he strikes will be key to determining whether the Fed will hike rates at the March FOMC, which looks probable, and whether the Fed will increase its forecast for the number of hikes it expects to implement this year from three to four. The downside risks to inflation have certainly faded with wages showing some signs of life and CPI in January coming in above expectations. With core inflation likely to rise above 2% in coming months we think the Fed will choose to take a more aggressive course of action.
As for the data, manufacturing numbers will be in focus. Durable goods orders will be dragged lower due to the volatility in Boeing aircraft orders, but excluding transportation the order book for US manufacturers looks very strong. This should be reflected in another robust reading for the ISM manufacturing index. The one area of potential data disappointment may be consumer confidence with the potential for slightly softer readings due to recent equity market volatility and higher mortgage borrowing costs. However, both the Conference Board and the University of Michigan surveys will remain incredibly strong by historical standards given robust employment and rising wages.
What is in store for Hungarian monetary policy? What will S&P and Moody's say about Romania?
We don’t see the National Bank of Hungary altering its monetary policy, we think it will keep rates unchanged using its IRS tenders to provide the much-needed dovish impetus. In line with recent global movements, we expect the PMI and confidence indicators to slip, but to remain at a level that suggests further optimism.
We have scaled back our Bank of Korea policy forecast from two rate hikes this year to only one in the third quarter
A Bloomberg headline this week that “S. Korea’s Household Debt Hits Record $1.3 Trillion in 2017” punches monetary policy hawks ahead of the Bank of Korea (BoK) monetary policy meeting on Tuesday, February 27. The article cited an 8% rise in household debt in the last year led by surging mortgage debt. The pace of debt growth has slowed from 11.6% in 2016 but it’s still too rapid for an economy growing at only 3%. The article also cited the risk of rising debt defaults as interest rates go up. High household debt has prominently appeared as a risk in BoK policy statements.
Discover what our analysts are looking out for next week in our global economic calendars