On early Thursday morning, US policymakers will update their interest rate forecast for the first time in three months, and investors may gain further insight into the Federal Reserve's determination to ease monetary policy.
It is widely expected that the central bank led by Fed Chairman Powell will maintain stable borrowing costs for the seventh consecutive meeting, but officials are uncertain about interest rate forecasts.
According to the median estimate of the survey, 41% of economists expect the Fed to signal two rate cuts in the closely watched dot plot, while the same number of economists expect the Fed's forecast to show only one rate cut or no rate cut at all.
Starting in March 2022, the Federal Open Market Committee (FOMC) will raise the benchmark federal funds rate by more than 5 percentage points, and borrowing costs have remained at the highest level in 20 years since July last year.
Several Fed leaders have said in recent weeks that they are in no hurry to cut interest rates, as inflation is more sustained and the outlook for economic growth remains solid.
Bloomberg Economics:
Anna Wong, Chief U.S. economist for Bloomberg Economics, said the June FOMC meeting will be one of the most important of the year, as Powell may offer the clearest clues about the timing of rate cuts. The new dot plot may indicate two 25 basis point rate cuts this year, while the March dot plot shows three.
Since the April 30-May 1 meeting, although inflation data has met expectations, economic growth indicators have unexpectedly declined. We expect Powell's voice to be relatively mild at the press conference.
As of April this year, the Fed's preferred inflation gauge was 2.7%, while its target is 2%. Data released last Friday showed a surge in employment and faster wage growth, prompting traders to lower their expectations for rate cuts this year.
"The Fed will choose to keep rates stable for a longer period of time," said Thomas Simons, a senior U.S. economist at Jefferies. "Before cutting rates, they want to see a series of more favorable data that fits the trend of inflation approaching 2%."
Tiff Macklem, Governor of the Bank of Canada, will give a speech at a meeting in Montreal. The Bank of Canada has just become the first central bank among the Group of Seven to launch an easing cycle.
In addition, the Bank of Japan's decision to reduce its bond purchase program, inflation data from countries such as Sweden, and key wage data from the United Kingdom will all be highlights of this week.
The Bank of Japan will end its two-day meeting on Friday and make policy decisions, which will be the focus of attention outside. While the Bank of Japan is expected to maintain short-term interest rates, officials may discuss whether to reduce bond purchases.
If Japan's long-term interest rates rise, narrowing the yield gap with U.S. Treasury bonds, the move could support the yen.
The UK will release some important data in the coming week. Labor market data to be released on Tuesday may show that wage growth has rebounded in the three months to April, with economists forecasting a year-on-year increase of 6.1%. Such a result may increase the reasons for the Bank of England to avoid rate cuts this month.
Meanwhile, the market expects data to be released on Wednesday to show that UK GDP did not grow for the first time this year in April, with both manufacturing and services expected to decline in April, suggesting a poor start to the second quarter.
As the UK election campaign heats up, Bank of England officials will remain silent for the next few days.
In the euro zone, industrial production data to be released on Monday is expected to record the smallest increase in three months, indicating a weak start to the region's second quarter.
After last week's rate cut, officials from the European Central Bank who will speak this week include the presidents and chief economists of the German and French central banks, Philip Lane, vice president Luis de Guindos and President Lagarde.
Edited by Jeffrey