Written by 12:46 pm Europe Economy

Next week’s economics: September 19-23

The Fed will announce its hotly anticipated interest rate decision on 21 September. Jay Powell’s hawkish rhetoric at the Jackson Hole symposium combined with stubbornly high inflation means that economists expect a hefty hike this month. 

Michael Pearce, senior US economist at Capital Economics, now forecasts a 50bps rise, while Oren Klachkin, lead US economist at Oxford Economics anticipates a 75bps rate increase.

ING chief international economist, James Knightley, also expects the Fed to frontload its rate hikes. Knightly argues that last week’s “goldilocks” jobs report painted a positive picture of the US economy and suggested that supply strains are easing as workers return to the labour force. Knightley expects a 75bps hike in September, followed by a 50bps hike in November and a 25bps rise in December, leaving the Fed Funds target rate at 3.75-4 per cent. 

This will only increase the dollar’s strength. Knightley argues that higher deposit rates, backed by near energy independence and a relatively resilient US economy should see the dollar continue to push higher. 

Yet Europe’s position has become more difficult. News that Russia has indefinitely suspended natural gas flows through the Nord Stream 1 pipeline only exacerbates Europe’s energy squeeze and intensifies the risk of recession. 

Two important European barometers will be released next week: the S&P Global Flash Eurozone Composite PMI and the European consumer confidence indicator. Last month consumer confidence remained below its pandemic-induced all-time low, but mounted a slight recovery. Retail sales also increased by 0.3 per cent in July. This resilience will soon be tested: Capital Economics’s senior Europe economis, Jessica Hinds cautions that consumer confidence is very weak, and price pressures remain acute. 

August’s Composite PMI showed Eurozone business activity drop for a second month in a row, and Pantheon Macroeconomics expect “industrial production to be a drag on EZ GDP growth in H2, especially over winter, due to the risk of voluntary or forced rationing”. 

23 September also sees the S&P Global/CIPS Flash UK Composite PMI released. Last month, the UK private sector moved closer to stagnation, dropping to 50.9. 

The Bank of England postponed last week’s scheduled Monetary Policy Committee meeting because of the period of national mourning following the death of the Queen. The new rates decision will instead be announced on 22 September. A 50bps interest rate hike is widely anticipated. 

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