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...
US Jobless Claims and Business Activity Signal Gradual Economic Cooling, Setting Stage for Fed Rate Cuts
Recent data on U.S. jobless claims and business activity suggest that the economy is gradually cooling, which could pave the way for the Federal Reserve to begin cutting interest rates next month. Despite an uptick in unemployment claims, the labor market remains relatively stable, and business activity continues to grow, albeit at a slower pace. This environment appears to support the Fed's cautious approach to monetary easing.
Key Takeaways:
Gradual Labor Market Cooling: The number of new unemployment claims rose slightly to 232,000 for the week ending August 17, a level consistent with a gradual cooling of the labor market. This slight increase follows a sharper-than-expected slowdown in job growth in July, which saw the unemployment rate rise to 4.3%. However, the steadying of claims suggests that while the labor market is softening, it is not deteriorating rapidly.
Business Activity Slows, but Remains Strong: The S&P Global US Composite PMI, which tracks both manufacturing and services, edged down to 54.1 in August, indicating continued expansion but at a slower pace. Businesses report that while customers are becoming more price-sensitive, economic activity remains solid. This supports projections of robust GDP growth in the third quarter, likely exceeding 2% annualized.
Fed's Path to Rate Cuts: With inflation showing signs of normalization and the economy on a gradual cooling path, Fed officials are expected to focus on the labor market as they consider rate cuts. A 25 basis-point reduction at the September 17-18 meeting is widely anticipated, with discussions ongoing about the potential for further cuts. The Fed's cautious approach aims to ensure inflationary pressures are fully under control while avoiding unnecessary harm to the labor market.
Housing Market Rebound: U.S. existing home sales rose 1.3% in July, reversing four months of declines, as lower mortgage rates and improved supply conditions provided a boost. The increase in home sales, along with a rise in inventory, suggests a potential rebound in housing activity in the coming months, which could further support economic stability.
Overall, the data reflects an economy that is gradually cooling but remains resilient, providing a supportive environment for the Federal Reserve to begin easing interest rates in a measured manner.
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