• Fed officials are hawkish intensively
• Senior officials of the New York Fed give a reference for measuring market liquidity
ECB meeting minutes: Policymakers confident in inflation outlook Ready to cut interest rates in June
• The Bank of England left its benchmark interest rate unchanged for the sixth time in a row
The Reserve Bank of Australia (RBA) left its policy rate unchanged for the fourth time in a row
• Sweden's central bank cut interest rates for the first time in eight years
• The Bank of Japan will adjust the level of monetary easing
The Bank of Canada warns of the risks posed by changes in interest rate cut expectations
• The Bank of Korea may use more than US$3 billion in foreign exchange reserves to intervene in the foreign exchange market
【Global Central Bank Dynamics】
• A summary of last week's speeches by Fed officials:
New York Fed President Williams said the economy remains healthy but growth is slowing, seeing signs that households are more cautious in spending. The Fed will eventually cut interest rates, depending on the data.
Minneapolis Fed President Kashkari said that a rate cut is still possible this year. If inflation remains stable and the labor market remains strong, no action should be taken on interest rates. If there is another slowdown in inflation, or if the job market is seen to be significantly weaker, this could lead to a rate cut. It's not that monetary policy hasn't had an impact, it's just that the impact isn't as big as expected, and it's not as fast as expected; How the trade-off between inflation and employment targets will be made has not been clearly articulated.
Richmond Fed President Barkin said that the current level of "restrictive" interest rates set by the Fed could help bring inflation to target. As a "Fed optimist", he believes that the current level of interest rates can reduce demand, thereby helping inflation return to the 2% target set by the Fed.
Boston Fed President Collins said that inflation in the United States has not been suppressed continuously since the beginning of this year. The federal funds rate is likely to remain elevated for longer than expected to dampen demand and reduce inflationary pressures.
San Francisco Fed President Daly said that due to the increased uncertainty about the inflation outlook, it is difficult to make policy forecasts until the Fed has more clear information, so she prefers to wait.
Atlanta Fed President Bostic said that despite the uncertainty of timing, he still believes the Fed will cut interest rates once this year.
Governor Bowman pointed out that the U.S. economy has sustained momentum and needs to maintain policy stability for a longer period of time. Fed's Logan said it was too early to consider cutting interest rates and that policy flexibility was needed.
Governor Cook said the growth in private credit is likely not materially detrimental to the resilience of the financial system. She added that "private credit funds appear to have the ability to hold the riskiest portion of corporate lending" and are less susceptible to a capital run. Bank profitability remains solid and deposit volatility has leveled off. Losses from bond portfolios and commercial real estate concentrations remain a key concern for regulators, with commercial real estate risks "considerable, but manageable".
Roberto Perli, manager of Open Market Accounts (SOMA) at the New York Fed System, said the Fed's announcement a week ago that it would slow the pace of balance sheet reduction represents an important and prudent step in managing a process that faces a lot of uncertainty about how far the Fed can go without putting pressure on markets.
• A New York Fed survey shows that Americans are once again preparing for a new round of rising housing costs. The survey found that respondents believe that both rents and house prices will rise more in the near term, although they do expect house prices to ease over the longer term. Households are also not seeing a reduction in the cost of housing borrowing.
• The minutes of the ECB's April monetary policy meeting showed that members generally agreed that further evidence is needed to gain sufficient confidence that inflation is steadily returning to the ECB's target level; There is general agreement that the price data is in line with the medium-term path; The vast majority of members agreed to keep interest rates unchanged, with several members believing that the conditions for a rate cut had been met.
• A look at last week's speeches by ECB officials:
Chief economist Lian En said that confidence in the decline in inflation is improving, and the slowdown in service inflation in April is an important step; The impact of the policy divergence between the ECB and the Fed should not be overstated, and the impact of the Fed's decisions on the eurozone is manageable.
Deputy Governor Guindos expects European economic growth momentum to strengthen and inflation to fall back to the ECB's 2% target by mid-2025. Guindos said the ECB was reluctant to commit to any path beyond June.
Governing Council member Holzman said that given the Fed's enormous influence over the dollar, ECB policymakers must take into account the Fed's movements when setting monetary policy.
Governing Council Simkus said it shouldn't be limited to cutting rates in June, with three rate cuts expected this year, unless unexpected data is seen.
Governing Council member Vujcic said that the Eurozone economic growth and inflation data were in line with the ECB's estimates, which became the reason to support a rate cut. Even if the ECB cuts interest rates in June, policy will continue to constrain economic growth.
Governing Council member Hernández de Cos said that if the inflation path remains stable, interest rate cuts could start in June. The ECB relies on data to make decisions and is unable to commit to a particular rate path.
Executive Commissioner Elderson said that if the outlook is confirmed, a rate cut in June is most likely, with no commitments on interest rates beyond June.
The Bank of England kept its benchmark interest rate unchanged at 5.25% for the sixth time in a row, in line with market expectations. Governor Bailey said that the shock of global inflation is receding, and the point of cutting the benchmark interest rate has not yet arrived. The first quarter of 2024 was slightly stronger than expected, with inflation expected to "rise" later in the year, services and wages inflation stubborn than expected, and a similar outlook for sustained inflation as in February. However, the ups and downs of the data should not be over-interpreted, and more data will help assess the CPI outlook.
The Reserve Bank of Australia (RBA) left its policy rate unchanged at 4.35% for the fourth time in a row, in line with market expectations. The RBA assumes that the cash rate remains at current levels until mid-2025, about nine months longer than the February scenario. RBA Governor Bullock noted that there must be vigilance against the risk of high inflation, interest rates are at an appropriate level, and policy will be adjusted as needed. The Reserve Bank of Australia (RBA) discussed the option of raising interest rates at the meeting, hoping that it would not have to raise rates, but would do so if necessary.
• The Riksbank announced on the 8th that it will cut the benchmark interest rate by 25 basis points to 3.75% from the 15th of this month due to the weak economy. This is the first rate cut by the Riksbank in eight years. The Riksbank said that inflation is approaching its target and economic activity is weak, so the central bank can ease monetary policy. If inflation falls further, the policy rate is expected to be cut two more times in the second half of the year.
• The Bank of Japan released the minutes of its monetary policy meeting on April 25-26. The minutes showed that if the outlook for economic activity and prices materializes and underlying inflation rises, the Bank of Japan will adjust the level of monetary easing, while expecting accommodative financial conditions to remain in place for the time being. Governor Kazuo Ueda said it might be appropriate for the Bank of Japan to raise interest rates at a faster pace if upside risks to the inflation outlook increase. But if downside risks to prices increase, central banks will also keep policy accommodative for longer.
• The Bank of Canada warned that there could be a sudden correction in the prices of some assets if interest rates do not move in line with market expectations. The central bank's Financial Stability Report said that after a rapid, aggressive tightening policy, markets are "increasingly focused on when and by how much interest rates will fall". This has reinvigorated risk appetite and pushed asset prices higher.
• South Korea's foreign exchange reserves stood at $413.26 billion at the end of April, down $5.99 billion from the previous month and the largest decline in nearly 19 months, according to data released by the Bank of Korea. The Bank of Korea said the shrinkage in foreign exchange reserves was due to market stabilization measures. Overseas investment institutions believe that the Bank of Korea will use at least $3 billion in foreign exchange reserves to intervene in the foreign exchange market and stabilize the won exchange rate.
• The Central Bank of Iceland kept the seven-day deposit rate at 9.25%, the highest level since December 2009. In its statement, the Icelandic central bank said that the current monetary policy stance is sufficient to raise the probability that inflation will return to target in an acceptable time frame.
The Central Bank of Poland left its benchmark interest rate unchanged at 5.75%.
The Central Bank of Peru cut its benchmark interest rate to 5.75% from 6.0%.
The Bank of Mexico left its overnight interest rate unchanged at 11.00%, in line with market expectations.
Bank Indonesia Governor hinted that policymakers do not need to raise interest rates further, while pledging to continue efforts to get the Indonesian rupiah above the 16,000 level against the US dollar.
• The Central Bank of Argentina will change the settlement cycle of its operations in the wholesale foreign exchange market from T+0 to T+1 to align with initiatives driven by major international markets.
【Market Watch】
Bank of America Merrill Lynch believes that the slowdown in wage growth in Canada in April makes a rate cut in June still possible, even with a strong labor force report. The number of new jobs unexpectedly increased by 90,400 and the unemployment rate held steady at 6.1%, compared to Bank of America Merrill Lynch's forecast of 6.2%. The growth was driven mainly by part-time employment and the service sector. The fact that hourly earnings growth has slowed and core inflation continues to fall makes a rate cut in July more likely and leaves the door open for the first rate cut in June. If the April CPI core inflation rate released on May 21 performs well, it is likely to clear the way for a rate cut in June.
• The UK economy rebounded from the drag of the second half of 2023 in the first quarter, Deutsche Bank economist Sanjay Raja said in a note. This outperformance was driven by higher government spending, higher investment and better trade data. This momentum should accelerate as inflation falls further, some marginal fiscal easing comes into effect, and the Bank of England begins to cut interest rates in the coming months, "Overall, given today's data, we still see upside risks to the expectation of a 0.5% UK economy growth this year, which is still higher than consensus estimates".
OCBC Bank said the market is still divided between the Bank of England in June (which is expected to have a 57% chance) and the August rate cut. The bank's long-held view is for a rate cut in August, but the expected rate cut could be brought forward. Between now and the June MPC meeting, there is a wealth of data to digest, including two CPI reports.
• Moody's economist Harry Murphy Crews said the RBA's statement that it remains vigilant about upside risks to inflation keeps the possibility of future rate hikes alive. However, he wrote in a note that many of the slightly more hawkish stances may be just posturing, as the threat of rate hikes alone is enough to cool demand without triggering a policy trigger. Moody's still believes that the most likely outcome is that interest rates remain unchanged until December. But Crews said the RBA's concerns about sticky inflation were well-founded. The final mile of Australia's inflation battle is proving to be tough, with Moody's not expecting inflation to slow to the top of the 2%-3% target range until June 2025.
【This week's highlights】
•Monday
21:00 2024 FOMC members, Cleveland Fed President Mester and Fed Governor Jefferson speak on central bank communications
•Tuesday
21:10 Fed Governor Lisa Cook speaks
22:00 Fed Chair Jerome Powell and ECB Governing Council member Knott attend a meeting and speak
•Wednesday
15:30 Riksbank releases the minutes of its May monetary policy meeting
16:00 ECB Governing Council member Muller speaks
17:00 ECB Governing Council member Villeroy speaks
•Thursday
00:00 2026 FOMC member and Minneapolis Fed President Kashkari for a fireside chat
03:20 Fed Governor Bowman speaks
17:00 ECB Executive Board member Panetta speaks
17:15 ECB Governing Council member Hernandez de Cos speaks
19:30 ECB Governing Council member Nagel speaks
20:15 ECB Governing Council member Villeroy speaks
22:00 Fed Governor Barr testifies before the Senate Banking Committee
•Friday
00:00 2024 FOMC member and Cleveland Fed President Mester speaks on the economic outlook
03:50 2024 FOMC member and Atlanta Fed President Bostic speaks on the economic outlook
15:20 ECB Vice President Guindos speaks
Editor: Wang Shurui
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