The Federal Reserve released the minutes of the July FOMC meeting on August 21, providing insight into the views of Fed officials on the current economic conditions and outlook:

Inflation: Inflation has eased compared to a year ago, with core PCE rising 2.6% year-over-year in June. Although still above the Fed’s 2% target, recent data have given Fed officials confidence that inflation is on track to reach the target, supported by factors such as slowing economic growth, weakened pricing power among businesses, and reduced household savings. Many officials noted that as the labor market rebalances, wage growth has continued to slow, which should further translate into a decline in core non-housing services inflation. Some officials also noted that the decline in new tenant rents is likely to have a delayed impact on housing services inflation, leading to the continuous moderation of housing services inflation

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Employment: The labor market is currently strong but not overheating. While the unemployment rate has been rising slightly since April, it remains at historically low levels. Some officials believe that job growth may be overestimated, as several officials pointed out that various indicators suggest the labor market is continuing to slow, with declines in hiring rates and job openings. Others also indicated that the rebalancing of the labor market has been partly supported by an increase in labor supply, particularly due to rising labor force participation rates among those aged 25 to 54 and an increase in immigration.

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Policy Outlook: With inflation continuing to decline, most officials believe that if inflation continues to fall as expected, it would be reasonable to consider easing monetary policy at the next meeting. Many officials see increasing risks to the employment target, warning that if the labor market slows further, it could lead to more significant deterioration. All officials agreed on the necessity of rebalancing and closely monitoring the risks associated with the dual mandate of price stability and maximum employment.

Overall, with inflation steadily decreasing and potential risks of labor market deterioration, the Fed has signaled a leaning toward a rate cut in September. Additionally, the U.S. Bureau of Labor Statistics on August 21 revised down the nonfarm payrolls by 818,000 from April 2023 to March 2024, meaning that the average monthly nonfarm payroll increase for this period will be revised down from 242,000 to 174,000, confirming the possibility that employment growth had been overstated. The market currently expects a total of 100 basis points in rate cuts throughout 2024 (25 basis points in September, 50 basis points in November, and 25 basis points in December).

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(Photo Credit: Federal Reserve)

Over the past two weeks, the unexpected rate hike by Japan, coupled with weak U.S. manufacturing PMI and rising unemployment rates, sparked fears of an economic recession in the markets. Meanwhile the strengthening of the yen prompted a significant number of carry trade investors to sell assets to cover margin calls, leading to a sharp decline in global stock markets within a short period.

However, as the U.S. services PMI and jobless claims came in better than expected, along with dovish remarks from the Bank of Japan, global stock markets quickly rebounded. Given the market’s heightened sensitivity to macroeconomic changes, this week’s key economic data need to be closely watched. Below is a preview of the upcoming economic data this week, as well as potential  market outlook regarding these key indicators.

August 14:

• July U.S. CPI: In June, the U.S. CPI increased by 3.0% year-over-year, with the core CPI (excluding food and energy) rising by 3.3%. According to a survey by the Federal Reserve Bank of Philadelphia for the third quarter of 2024, it is expected that as the labor market slows and service inflation decreases, the CPI and core CPI will decline to 2.5% and 2.6%, respectively, by the end of 2024.

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• July U.K. CPI: In June, the U.K. CPI rose by 2% year-over-year, with the CPIH (including owner-occupiers’ housing costs) at 2.8%. Excluding food, energy, and tobacco, the core CPI and CPIH were 3.5% and 4.2%, respectively. According to the August MPC meeting minutes, the Bank of England expects the CPI to rise to around 2.75% by the end of 2024 due to a reduction in the impact of energy prices, before falling back to the target of around 2%.

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August 15:

• China’s July Economic Data: In June, China’s retail sales of consumer goods increased by 2% year-over-year, industrial output rose by 5.3%, and fixed asset investment grew by 3.9%. The market expects that with the summer season and a low base effect, retail sales could rebound to 2.6%. Meanwhile, industrial output is anticipated to increase to 5.4% due to sustained high growth in industrial exports, while fixed asset investment is expected to remain steady at 3.9%.

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• July U.S. Retail Sales: In June, U.S. retail sales increased by 3.0% year-over-year, with monthly growth flat. Core retail sales rose by 0.4% month-over-month, while double core retail sales (excluding autos and gasoline) increased by 0.8%, and control group retail sales rose by 0.9%. Given the slowdown in consumer spending, the market expects a modest monthly growth of 0.3% in July retail sales.

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• Japan’s Q2 Real GDP: In Q1, Japan’s real GDP contracted at an annualized rate of 1.8%, and was revised downward to -2.9% due to declines in consumption and exports. According to a survey by the Japan Center for Economic Research, economists expect Q2 2024 GDP growth to reach an annualized rate of 2.26% driven by a rebound in external demand. The Bank of Japan forecasts full-year 2024 GDP growth of 0.5% to 0.7%.

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(Photo Credit: Federal Reserve)