RBA: RBA Eased Due To Lower Inflation But Move Not A Commitment To Further Cuts
Mar-04 01:35
The February meeting minutes clarified the discussion around the Board’s decision to cut rates 25bp. It did keep its options open saying that if inflation proved to be sticky it could keep rates at 4.10% “for an extended period” and explicitly stated that it could tighten “policy if the outlook was for inflation to rise materially”. The Board determined though that the risk of holding rates “high for too long” outweighed that of having to remain restrictive for longer but that it didn’t pre-commit them to further easing.
- The meeting statement and Governor Bullock’s press conference were very cautious around future easing. The minutes were consistent with this stating that “members expressed caution about the prospect of further policy easing” as while they were more confident that inflation would return to target, it was “not yet assured”, especially given that the core inflation stayed above the 2.5% mid-point using market rates.
- The Board also implied that Australia may not need to cut rates as much as other countries given that it didn’t increase them as much and unemployment is lower.
- It eased policy because core and wage inflation in Q4 was lower than expected giving it greater confidence that underlying inflation would sustainably return to target and risks to growth, especially private consumption and global demand, were to the downside. There was also some doubt over whether the labour market was as tight as the data imply.
- The arguments for keeping rates unchanged included the risk to inflation from easing too soon. The tight labour market was the “strongest reason” with unemployment rate forecasts revised down. The Board was concerned that it wasn’t “consistent with inflation being at the target”.
- There was also a chance growth could recover faster than expected especially if the negative impact from US policy didn’t materialise. The output gap is also estimated to be positive and unlikely to close assuming market rates.
- While the Board believes policy is restrictive, it notes that credit growth and equity/bond pricing “clouded this conclusion somewhat”.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
Jan-31 21:48
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Jan-31 21:39
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
Jan-31 21:37
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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