Summary
United States: Ground Control to Major Powell: Odds of Soft Landing Rising
- Economic data continued to beat expectations this week. Real GDP came in at a stronger-than-expected 2.4% annualized rate in Q2. Inflation and compensation costs have decelerated; yet, we suspect the FOMC would like to see continued moderation before it concludes that inflation is sufficiently low and stable.
- Next week: Construction Spending (Tue.), ISM Indices (Tue. & Thu.), Employment (Fri.)
International: European Central Bank Raises Interest Rates; Bank of Japan Tweaks Monetary Policy
- The European Central Bank (ECB) raised its Deposit Rate 25 bps to 3.75% at this week’s policy announcement, but was cautious in offering any guidance about policy beyond this July meeting. We expect the ECB to hold rates steady for an extended period in September and beyond, and do not see the ECB easing monetary policy until Q2-2024. The Bank of Japan tweaked its monetary policy stance in a hawkish direction, saying it would allow 10-year Japanese Government Bond Yields to rise flexibly to somewhere between 0.50% and 1.00%.
- Next week: China PMIs (Mon.), Reserve Bank of Australia Policy Rate (Tue.), Bank of England Policy Rate (Thu.)
Interest Rate Watch: Fed Hikes and Keeps Its Options Open
- The Federal Open Market Committee hiked the federal funds rate by 25 bps at its July monetary policy meeting. The post-meeting communication was little changed from June as the committee keeps its options open regarding additional tightening.
Topic of the Week: Summer Strife
- A string of labor disputes have put union activity and workers’ bargaining power front and center. The willingness to strike reflects the tight state of the labor market as well as decades-high inflation. With union compensation growth lagging behind inflation and non-union pay over the past few years, the push appears to be more catch-up than a canary of future wage trends.
