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What happened last week?
American economic and monetary policy influenced markets again last week with the release of U.S. updated jobs data, U.S. Federal Reserve minutes and comments at the annual Fed symposium.
The Federal Reserve’s monetary policy committee released the minutes from its most recent meeting in July. Committee members confirmed a rate cut in September was likely if economic conditions, primarily employment and inflation, continue their downward trajectory.
In its annual review, the U.S. Labor Department revised the number of jobs created for the year ending March 31st by 818,000, which is 30% of the previously reported total. The second Federal Reserve’s mandate, in addition to “price stability” (i.e. inflation), is to maximize employment. As inflation has moderated and approached the Fed’s 2% goal the importance of jobs data has risen. According to the Fed’s minutes of July 31st, the time to lower rates is approaching.
CNBC and jobs revision
In his speech on Friday at the Fed’s symposium in Jackson Hole, WY, Chair, Jerome Powel, said:
“The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate. The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The Fed delivers its next interest rate announcement and monetary policy statement on September 18, and rate cuts will occur soon despite the lack of specificity on timing and size. CNBC and rate cuts
Domestically, the Canadian Consumer Price Index (CPI) rose 2.5% on a year-over-year basis in July, increasing at the slowest pace since March 2021 and down from a 2.7% gain in June. The slowing rate of inflation is broad-based and lower prices for travel tours, passenger vehicles and electricity made a strong contribution. Grocery prices have risen 2.1% over the last year, which is below the overall rate of price increases.
On a year-over-year basis the increase in shelter costs (+5.7% annually) slowed slightly but remains far above the all-items inflation rate. The mortgage interest cost index has risen 21.0%, down from June’s 22.3%. The annualized price increases on the rent index eased to 8.5% annually, compared to 8.8% last month.
In addition to the implications for daily and major purchases, inflation progress has been the primary consideration for the Bank of Canada and its interest rates. The next scheduled announcement is September 4th, and this week’s inflation data means that there is “nothing stopping the Bank from cutting rates by another 25 basis points” according to a TD senior economist. StatsCan CPI release
CBC and CPI
What’s ahead for this week and beyond?
In Canada, wholesale sales for July, federal government budget balance, average weekly earnings and Gross Domestic Product for June and Q2 will be announced.
In the U.S, retail and wholesale inventories, durable goods orders, house price and mortgage market index, pending home sales and consumer confidence will be released. July Personal Consumption Expenditures (PCE) price index, Q2 PCE, consumer spending and GDP are scheduled.
Globally, Japan will release its CPI, industrial production, unemployment and consumer confidence, Eurozone CPI and HICP (Harmonized Index of Consumer Prices), unemployment, loan data, business and consumer survey, consumer confidence and consumer inflation expectation data will be reported as Eurogroup meetings are conducted.
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