Powell reaffirms Fed’s patience, signals no urgency for rate cuts

    Fed Chair Jerome Powell reiterated in the Semiannual Monetary Policy Report to Congress that Fed is not in a hurry to cut interest rates.

    A prolonged policy hold remains on the table if inflation does not continue its downward trend. However, he also acknowledged that if the labor market weakens or disinflation accelerates, Fed could respond with further easing.

    Powell noted that if inflation fails to make sustained progress toward the 2% target, Fed can “maintain policy restraint for longer.” On the flip side, if the labor market weakens unexpectedly or inflation declines more rapidly than forecast, Fed “can ease policy accordingly.”

    Full opening remarks of Fed Powell here.

    Fed’s Hammack supports prolonged policy pause

      Cleveland Fed President Beth Hammack reinforced the case for a prolonged pause in rate cuts, emphasizing that it will likely be “appropriate to hold the funds rate steady for some time.”

      She highlighted the need for a patient approach, allowing Fed to assess the labor market, inflation trends, and overall economic performance under the current policy stance.

      Hammack noted that inflation risks remain “skewed to the upside,” with possibility of delaying the return to 2% target. The “recent history” of elevated inflation adds complexity to the outlook, raising concerns about entrenched pricing pressures.

      She also pointed to “considerable uncertainty” surrounding government policies, particularly with regard to the “ultimate effects” of recent tariff measures.

      US NFIB small business optimism drops as uncertainty rises, hiring challenges persist

        NFIB Small Business Optimism Index declined to 102.8 in January, missing market expectations of 104.6 and falling from December’s reading of 105.1.

        The decline reflects growing concerns among small business owners, as seven out of the 10 components of the index deteriorated, while only one improved. Additionally, the Uncertainty Index surged 14 points to 100, marking the third-highest reading in its history after two months of easing uncertainty.

        NFIB Chief Economist Bill Dunkelberg highlighted while there is still “optimism regarding future business conditions,” uncertainty is climbing. One major concern remains the persistent “hiring challenges,” as businesses struggle to find qualified workers to fill vacancies. Capital investment plans are also being reconsidered.

        Full NFIB release here.

        BoE’s Mann: Larger rate cut needed to send clear market signal

          BoE MPC member Catherine Mann explained her unexpected vote for a 50bps rate cut last week. Speaking to the Financial Times, she emphasized that “Demand conditions are quite a bit weaker than has been the case”, prompting a reassessment of her stance on inflation risks.

          She now sees inflationary pressures easing faster, with pricing trends aligning closely to 2% target in the year ahead. This marks a notable shift from her previously hawkish position, which had consistently supported maintaining restrictive monetary policy.

          A key reason for her preference for a larger cut was the need to deliver a stronger signal to financial markets. She argued that a half-point move would help “cut through the noise” and provide clearer guidance on the need for looser financial conditions in the UK.

          “To the extent that we can communicate what we think are the appropriate financial conditions for the UK economy, a larger move is a superior communication device,” she noted.

          Mann’s stance aligns her with Swati Dhingra, the most dovish member of the MPC, who also advocated for a 50bps cut to 4.25% at last week’s meeting. The final decision was a more measured 25bps reduction to 4.50%.

          Australian NAB business confidence rebounds to 4, but conditions remain weak

            Australia’s NAB Business Confidence index made a strong recovery in January, rising from -2 to 4 and returning to positive territory. However, despite this uptick in sentiment, underlying business conditions deteriorated.

            Business Conditions index dropped from 6 to 3, marking a notable slowdown. Within this, trading conditions slipped from 10 to 6, while profitability conditions turned negative, falling from 4 to -2. On a more positive note, employment conditions edged up slightly from 4 to 5.

            Cost pressures remained a key concern for businesses. Purchase cost growth eased to 1.1% on a quarterly equivalent basis, down from 1.4%. Labor cost growth picked up slightly to 1.8%. Meanwhile, final product price growth held steady at 0.8%, while retail price inflation inched up to 0.9%. Businesses are struggling to fully pass on rising costs to consumers.

            NAB Chief Economist Alan Oster noted that while confidence improved, it is uncertain whether this momentum will be sustained. Elevated cost pressures, particularly on wages and input costs, continue to weigh on overall business conditions.

            Full Australia NAB business confidence release here.

            Australia’s Westpac consumer sentiment ticks up, RBA to start cutting this month

              Australia’s Westpac Consumer Sentiment Index rose slightly by 0.1% mom to 92.2 in February. While consumer mood improved significantly in the second half of 2024, the past three months have shown stagnation.

              Westpac noted that financial pressures on households persist and a more uncertain global economic climate has also played a role in dampening optimism.

              RBA is likely to begin policy easing at its next meeting on February 17–18. Westpac highlighted that recent economic data on core inflation, wage growth, and household consumption indicate that inflation is “returning to target faster” than previously expected.

              These factors provide RBA with the confidence to initiate a 25bps rate cut this month, marking the first step in what is expected to be a “moderate” easing cycle through 2025.

              Full Australia Westpac consumer sentiment release here.

              Eurozone Sentix rises to -12.7, but inflation keeps ECB in check

                Eurozone investor sentiment showed signs of improvement in February, with the Sentix Investor Confidence Index rising from -17.7 to -12.7, surpassing expectations of -16.4. This also marks the highest reading since July 2024, signaling a tentative shift in market sentiment. Current Situation Index also improved, climbing from -29.5 to -25.5, while Expectations Index made an even more notable leap from -5 to 1, also reaching its highest level since July last year.

                Sentix noted that the Eurozone economy is “trying to emerge from the crisis,” with some early signs of stabilization. However, Germany’s economic struggles continue to act as a drag on the broader region, described as a “lead weight” on the bloc’s recovery. Despite this, optimism is growing that a potential shift in German leadership could usher in a more pro-business policy stance, which could help lift economic prospects in the months ahead.

                One key takeaway from the report is the diminishing likelihood of aggressive monetary easing from ECB. With investor sentiment improving and the economic outlook brightening, “hopes of more significant support measures from the ECB are also dwindling.”

                Inflation outlook remains a lingering concern, preventing ECB from committing to deeper rate cuts. Sentix’s “Inflation” theme index remained at -11 points, signaling persistent price pressures.

                Full Eurozone Sentix release here.

                China’s CPI picks up to 0.5%, but factory prices remain stuck in deflation

                  China’s consumer inflation accelerated at the start of 2025, with CPI rising from 0.1% yoy to 0.5% yoy in January, slightly exceeding market expectations of 0.4%. This marked the fastest annual increase in five months. On a monthly basis, CPI surged 0.7% mom, the strongest rise in over three years.

                  Core inflation, which strips out food and fuel prices, edged up from 0.4% yoy to 0.6% yoy, reflecting a modest pickup in underlying demand. Food prices climbed by 0.4% yoy, while non-food categories also posted a 0.5% yoy increase.

                  However, despite these gains, consumer inflation remains well below the government’s target, with full-year 2024 CPI growth coming in at just 0.2%, the lowest since 2009, and reinforcing the persistent weakness in domestic consumption.

                  Meanwhile, producer prices remained firmly in deflationary territory. PPI held steady at -2.3% yoy in January, missing expectations of a slight improvement to -2.2% yoy. This marks the 28th consecutive month of factory-gate deflation, highlighting ongoing struggles within the manufacturing sector and pricing pressures stemming from weak external demand and excess capacity.

                  Canada’s employment grows 76k, unemployment rate down to 6.6%

                    Canada’s labor market significantly outperformed expectations in January, with employment rising by 76.0k, far exceeding 26.5k forecast. The biggest job gains were seen in manufacturing (+33k, +1.8%) and professional, scientific, and technical services (+22k, +1.1%).

                    The unexpected strength in employment was further reinforced by decline in the unemployment rate from 6.7% to 6.6%, beating market expectations of a slight uptick to 6.8%.

                    Despite the surge in hiring, wage growth showed signs of moderation, with average hourly earnings rising 3.5% yoy, down from 4.0% yoy in December. Total actual hours worked rose 0.9% mom, with a 2.2% annual increase.

                    Full Canada employment release here.

                    US NFP grows 143k, wages growth strong

                      US non-farm payroll job growth fell short of expectations but wage growth exceeding forecasts. Employers added 143k jobs, missing the 169k estimate and coming in below the 2024 monthly average of 166k. However, the downward surprise was offset by a significant upward revision to December’s number, which was adjusted from 256k to 307k.

                      Unemployment rate unexpectedly dropped from 4.1% to 4.0%. At the same time, the labor force participation rate ticked slightly higher to 62.6%, reinforcing signs of a still-active workforce. While the decline in headline job creation might signal a cooling labor market, the improvement in unemployment suggests that the slowdown is not yet severe.

                      The standout data point in the report was wage growth, with average hourly earnings surging 0.5% mom, surpassing the expected 0.3% mom increase. On an annual basis, wages rose 4.1% yoy, a sign that businesses are still competing for workers despite moderation in hiring.

                      Full US non-farm payrolls release here.

                      NFP may beat expectations, but unlikely to trigger Dollar range breakout

                        Today’s US Non-Farm Payroll report is the focal point for market participants, with consensus estimates pointing to 169k new jobs in January and an unemployment rate holding steady at 4.1%. Average hourly earnings growth is expected at 0.3% month-over-month, maintaining the robust wage gains of recent months.

                        There are indications the data could surprise to the upside. Latest ISM surveys showed employment components improving, with manufacturing’s gauge jumping from 45.4 back into expansion at 50.3, and services employment rising to 52.3 from 51.3. ADP private payrolls number also showed a solid 183k increase, little changed from December’s 176k. Meanwhile, initial jobless claims remain near historical lows, with the four-week moving average inching up only slightly from 213k to 217k.

                        If today’s jobs report beats expectations, the case for Fed to maintain its pause on easing for longer would strengthen. However, persistent uncertainties—especially US trade policies—may limit the Dollar’s ability to rally significantly. While a strong labor market may keep rate cuts at bay, investors will weigh other geopolitical and economic factors before pushing the greenback through key near term resistance levels.

                        Technically, Dollar Index is currently extending the consolidation pattern from 110.17 short term top. In case of deeper pull back, downside should be contained by 38.2% retracement of 110.15 to 110.17 at 106.34 to bring rebound. On the upside, firm break of 110.17 is needed to confirm resumption of recent up trend. Otherwise, outlook would remains neutral for more sideway trading.

                        IMF backs BoJ’s gradual rate hikes, sees policy rate moving toward neutral by 2027

                          Nada Choueiri, deputy director of IMF’s Asia-Pacific Department and mission chief for Japan, stated that IMF remains “supportive” of BoJ’s current monetary policy course. She emphasized that rate hikes should be implemented in a gradual and flexible manner to ensure that domestic demand continues to recover.

                          Choueiri projected that BoJ’s policy rate could rise “beyond 0.5%” by the end of this year, with a longer-term path toward the “neutral level” by the end of 2027.

                          IMF estimates Japan’s neutral rate to be within a band of 1% to 2%, with a midpoint of 1.5%.

                          Also, IMF maintains an optimistic outlook for Japan’s economy, forecasting 1.1% GDP growth in 2025, supported by increasing wages and stronger consumer spending.

                          Given these projections, IMF expects BoJ to continue its tightening cycle in a controlled manner.

                           

                          BoC’s Macklem warns tariff threats already weighing on confidence

                            Speaking at a conference in Mexico City, BoC Governor Tiff Macklem raised concerns over the economic uncertainty stemming from U.S. President Donald Trump’s tariff threats. He noted that “threats of new tariffs are already affecting business and household confidence, particularly in Canada and Mexico.”

                            “The longer this uncertainty persists, the more it will weigh on economic activity in our countries,” he warned.

                            Macklem stressed that central banks face a challenging task in managing the economic fallout. He explained that policymakers cannot counteract both “weaker output” and “higher inflation” simultaneously.

                            The challenge will be to assess the downward pressure on inflation from reduced economic activity while balancing it against the upward pressure from higher input costs and supply chain disruptions caused by tariffs.

                             

                            Fed’s Logan sees rates on hold “for quite some time” even if inflation drops

                              Dallas Fed President Lorie Logan suggested at a BIS conference overnight that interest rates may remain on hold for “quite some time,” even if inflation continues to move closer to the 2% target. She emphasized that a decline in inflation alone would not be a sufficient trigger for policy easing, as long as labor market conditions remain strong.

                              She argued that such a scenario would “strongly suggest that” interest rate is
                              already pretty close to neutral, “without much near-term room for further cuts”.

                              Instead, Logan highlighted that signs of a weakening labor market or a slowdown in demand would be more relevant factors in determining when easing should begin.

                              US initial jobless claims rises to 219k vs exp 214k

                                US initial jobless claims rose 11k to 219k in the week ending February 1, above expectation of 214k. Four-week moving average of initial claims rose 4k to 217k.

                                Continuing claims rose 36k to 1886k in the week ending January 25. Four-week moving average of continuing claims rose 2k to 1872k.

                                Full US jobless claims release here.

                                BoE cuts rates to 4.50% in surprisingly dovish vote

                                  BoE lowered its policy rate by 25 basis points to 4.50%, as widely expected, but the tone of the decision was unexpectedly dovish.

                                  The Monetary Policy Committee vote split at 7-2, with Swati Dhingra advocating for a more aggressive 50bps cut—as expected—but hawkish member Catherine Mann surprisingly joining her, marking a significant shift in her stance.

                                  BoE emphasized a “gradual and careful” approach to easing, a slight adjustment from December’s messaging, which only referenced “gradual” reductions. This shift highlights policymakers’ growing concerns over inflation persistence and economic fragility. Governor Andrew Bailey reaffirmed that rate adjustments would be assessed on a “meeting-by-meeting” basis, with no pre-determined path for cuts.

                                  In its updated economic projections, BoE raised its inflation outlook, now expecting headline CPI to peak at 3.7% in Q3 2025, up from a prior forecast of 2.8%. The revision reflects higher energy costs and expected increases in regulated utility and transport prices. Inflation is not anticipated to return to the 2% target until Q4 2027, six months later than previously projected.

                                  Growth forecasts were also downgraded sharply for 2025, with expected GDP expansion halved to 0.75%, citing weak business sentiment, sluggish consumer activity, and poor productivity growth. However, projections for 2026 and 2027 were revised slightly upward to 1.5% from 1.25%, suggesting policymakers see a slow but eventual economic recovery.

                                  Full BoE statement here.

                                  Eurozone retail sales falls -0.2% mom in Dec, EU down -0.3% mom

                                    Eurozone retail sales slipped by -0.2% mom in December, missing market expectations of -0.1% decline and pointing to continued weakness in consumer demand. The drop was largely driven by -0.7% contraction in food, drinks, and tobacco sales, while non-food products saw a modest 0.3% increase. Automotive fuel sales in specialized stores also ticked up 0.2%, providing some offset to the broader decline.

                                    At the EU-wide level, retail sales fell even further, down 0.3% mom. The country-level breakdown highlights stark contrasts in retail activity. Slovenia (-2.2%), Germany (-1.6%), and Poland (-1.5%) saw the sharpest contractions, while Slovakia (+8.2%), Finland (+2.1%), and Spain (+1.4%) registered solid gains.

                                    Full Eurozone retail sales release here.

                                    ECB’s Cipollone open to March cut, flags risks of full US-China trade war

                                      ECB Executive Board member Piero Cipollone indicating that while “there is still room for adjusting rates downwards”, the March decision remains uncertain. He stated that ECB must be “extremely careful” in its assessment, and he will enter the meeting “with an open mind”.

                                      Discussing the concept of the neutral rate in a Reuters interview, Cipollone downplayed its practical significance in policy setting. He pointed out that when estimates for the neutral rate vary widely—such as between 1.75% and 2.25%—it becomes “not terribly useful for setting monetary policy.” If ECB operates near either end of the range, it could risk either undershooting or overshooting its inflation target.

                                      Cipollone also raised concerns about the evolving global trade situation. The immediate impact of US tariffs depends on European retaliation and specific product categories affected, He warned that a “full trade war” between the US and China poses a more significant threat.

                                      With China accounting for 35% of global manufacturing capacity, broad trade restrictions could flood European markets with Chinese goods. This would create a dual challenge— “deflationary” pressures from lower-priced imports and a “contractionary” effect as European producers struggle to compete.

                                      Full interview of ECB’s Cipollone here.

                                      BoE to cut 25bps, focus on MPC split and stagflation risks

                                        BoE is widely expected to lower interest rates by 25bps to 4.50% today, marking its third cut in the current cycle. The central bank is likely to maintain a cautious stance, reinforcing its guidance of a “gradual” approach, which suggests a pace of four quarter-point cuts throughout 2025.

                                        The Monetary Policy Committee’s vote split will be a key focus, as divisions among policymakers could influence BoE’s forward guidance. Known hawk Catherine Mann may dissent and argue for keeping rates steady, while dovish member Swati Dhingra could push for a more aggressive 50bps cut. A wider split would highlight internal uncertainty over the pace of easing.

                                        Alongside the rate decision, BoE will release its updated quarterly Monetary Policy Report, which is expected to reflect downward revisions to growth projections for 2025-2027. However, inflation forecasts, at least for 2025, could be revised higher. Such a combination would reinforce concerns over stagflation, a scenario where sluggish growth coincides with persistent inflationary pressures.

                                        GBP/USD is hovering near a critical technical resistance zone ahead of BoE decision. The zone include 55 D EMA (now at 1.2522) and 38.2% retracement of 1.3433 to 1.2099 at 1.2609. Firm rejection from this zone would reinforce the view that recent price action from 1.2099 remains corrective, keeping the broader bearish trend intact. In this case, decline from 1.3433 should resume through 1.2099 low at a later stage.

                                        BoJ’s Tamura advocates rate hike to 1% by late fiscal 2025

                                          BoJ board member Naoki Tamura, a known hawk, reinforced his stance on the need for tighter monetary policy, stating that Japan’s short-term interest rates should rise to at least 1% by the second half of fiscal 2025 to mitigate inflation risks.

                                          Tamura explained that inflationary pressures are mounting, necessitating a shift away toward a more neutral rate. He highlighted that by late fiscal 2025, the Japanese economy is expected to reach a point where the 2% inflation target can be considered sustainably achieved, supported by broad-based wage increases, including among smaller firms.

                                          “Bearing in mind that short-term interest rates should be at 1% by the second half of fiscal 2025, I think the Bank needs to raise rates in a timely and gradual manner, in response to the increasing likelihood of achieving its price target,” he said.