The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Consumer spending in the United States saw a solid increase in July, indicating a stable economic outlook for the third quarter and challenging the likelihood of a significant interest rate cut from the Federal Reserve next month.
Key Highlights:
Rise in Consumer Spending: The Commerce Department reported that consumer spending, which represents over two-thirds of US economic activity, rose by 0.5% in July, following a 0.3% increase in June. This suggests that consumer spending maintained its momentum from the second quarter, contributing to a 3.0% annualized growth rate in gross domestic product (GDP) during that period.
Moderate Inflation Growth: The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, rose by 0.2% in July, matching expectations and following a 0.1% increase in June. Year-over-year, the PCE price index rose by 2.5%, while core inflation, which excludes volatile food and energy components, also increased by 2.6%, consistent with June's figures.
Fed's Monetary Policy Outlook: Despite the rise in consumer spending and inflation above the Federal Reserve's 2% target, inflationary pressures appear to be subsiding. Most economists expect the Fed to resist a half-percentage-point rate cut in September, as the economy remains stable. The Fed has maintained its policy rate in the 5.25%-5.50% range for over a year.
Labor Market and Economic Concerns: Concerns about the US economy persist following a rise in the unemployment rate to a near three-year high of 4.3% in July. However, the slowdown in the labor market is primarily due to reduced hiring rather than layoffs, and Fed Chair Jerome Powell recently indicated a readiness for policy adjustments if necessary.
Overall, the continued growth in consumer spending, coupled with moderate inflation, suggests a resilient US economy, albeit with some caution from the Federal Reserve on rate adjustments.
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