The Federal Reserve will start confronting the case for more stimulus to support the U.S. economy on Wednesday as it holds its final policy meeting of a truly momentous year.
The central bank in Washington, one of at least 16 monetary institutions worldwide scheduled for a decision this week, now has the specter of a marked slowdown in the labor-market’s rebound to consider after the latest jobs data for November.
The recent surge in Covid-19 cases is hitting workers and curbing the broader economic recovery. Resumed stay-at-home advisories in some of America’s biggest cities, such as Los Angeles and Chicago, have been a blow to some businesses still reeling from lockdowns at the start of the pandemic.
That may push the Federal Open Market Committee to debate changes to its bond-buying program or alter its guidance for future purchases, Fed watchers say. Officials will also update quarterly forecasts for economic growth, unemployment, inflation and for their target interest rate, which is expected to stay near zero through 2023.
The U.S. Treasury Department’s request that the Fed wind down several emergency lending programs is another reason to consider providing more support to the economy in other forms. Without some of those facilities, officials may view growth risks to be worse, especially as Congress wrangles over more government aid to people and companies.
Elsewhere, the Bank of England could be forced to expand stimulus if a post-Brexit trade deal still eludes the U.K., while central banks in Japan, Russia and Switzerland will deliver some of the plethora of other decisions due. Flash PMIs in Japan, Europe and the U.S. will also provide an early glimpse of how economies weathered December.
U.S. and Canada
Ahead of the Fed decision, policy makers will get November data on industrial production and retail sales and a flash December PMI reading. Thursday sees jobless claims, which surged to a three-month high last week, suggesting that widening business shutdowns to curb the pandemic are spurring fresh job losses.
Canadian inflation data for November are due Wednesday. Gauges of underlying inflation have been surprisingly resilient, and that could pose a problem for the Bank of Canada if price pressures persist.
Europe, Middle East, Africa
If a collapse in post-Brexit trade talks materializes, that could turn the BOE’s Thursday decision from a policy non-event to a blockbuster must-watch. Some economists expect the central bank’s first response to be accelerating the pace of quantitative easing before considering other steps.
Even if negotiations between Britain and the EU continue, expect the BOE to amplify its message about the tools it can deploy to cushion the blow of a chaotic outcome. Traders have already brought bets of an interest-rate cut to zero forward to June next year.
The Swiss National Bank decision is on the same day, with the likely focus on any remarks about foreign-exchange interventions. Switzerland has met the U.S. criteria for a currency manipulator, according to people familiar with the matter.
Also on Thursday, Norway’s central bank, which is tipped to be among the first to raise rates once the coronavirus crisis abates, is expected to keep its benchmark at zero.
Russia has kept the market divided on whether it will cut again or hold on Friday, against the backdrop of rising inflation and remarks from Governor Elvira Nabiullina suggesting caution should prevail. Policy makers in the Czech Republic and Hungary also deliver monetary decisions next week.
Uganda’s central bank may have room for another rate cut on Monday, with the economy now projected to contract this year for the first time in more than three decades. Meanwhile in Mozambique, policy makers will probably hold for a third straight meeting on Wednesday as inflation quickens.
China’s data dump on Tuesday will likely provide more evidence of the economy’s strong rebound, with industrial production, retail sales and investment expected to have strengthened in November.
The Bank of Japan will issue its closely watched Tankan business survey on Monday amid growing gloom among smaller firms. On Friday, the BOJ announces its policy decision, with rates likely to stay unchanged despite CPI data set to show a steeper fall in prices. The BOJ is also likely to extend special pandemic support measures for businesses.
Three other Asian central banks -- in Indonesia, the Philippines and Taiwan -- also announce rate decisions, with economists predicting no change. In India, data at the start of the week will show inflation remains elevated, well above the central bank’s target band.
On Tuesday, Brazil’s central bank posts the minutes of last week’s meeting where it kept its key rate at a record-low 2%. Many observers expected some shift in language given a recent rise in prices, but were still surprised by the post-decision statement’s hawkish tone. The quarterly inflation report out Thursday promises a trove of fresh forecasts and analysis.
Mexico’s ever-cautious central bank has signaled it will hold at 4.25% on Thursday, and adopt a data-dependent stance with inflation again in its target range. Colombia’s central bank will all but certainly leave its 1.75% rate unchanged too on Friday, despite a shock 1.49% inflation print.
Argentina, which was facing a third year of recession in 2020 even before the pandemic hit, will release inflation, third-quarter output and unemployment. GDP is set to show a jump from the April-June period, but price readings are likely to remain elevated and roughly 20% of registered workers have dropped out of the market.
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