Bloomberg is reporting this weekend that the “Fed's Nightmare Year isn't over yet” as U.S. job numbers “soured somewhat.” As a result, the U.S. 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 is one of at least 16 monetary institutions worldwide scheduled for important decisions this week – as the Fed “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 U.S. COVID-19 cases is hitting workers and curbing the broader economic recovery, Bloomberg emphasizes. Resumed stay-at-home advisories in some of the biggest U.S. cities, such as Los Angeles and Chicago are seen as blows to businesses still reeling from lockdowns imposed 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, Bloomberg notes. 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.
These developments also could bring new focus on the U.S. Treasury Department's request that the Fed wind down several emergency lending programs—and even highlight those actions as 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.
“The confluence of the trajectory of the virus, the possible shape of a Biden stimulus package (if a passable version arises) and the behavior of financial markets – particularly treasury yields – could create the need for a QE adjustment in the first quarter of 2021. Recent guidance from Fed officials prior to the communications blackout period suggests they are content with policy for now, but by no means complacent,” the report said.
In a scan of global economic policy trends, Bloomberg says that the Bank of England could be forced to expand its stimulus if a post-Brexit trade deal still eludes the UK while central banks in Japan, Russia and Switzerland will also face a number of other decisions. Flash PMIs in Japan, Europe and the U.S. will also provide an early glimpse of how economies weathered December.
A Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index survey responses each month. Any reading above 50 indicates improving conditions, while readings below 50 indicate the opposite, Bloomberg said.
Ahead of the Fed decision, policy makers will get November data on industrial production and retail sales. 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.
Bloomberg emphasizes a collapse in post-Brexit trade talks 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.
Bank of Russia Governor Elvira Nabiullina says the country is nearing the end of its monetary easing cycle after cutting interest rates to a record low. 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.
China's data dump on Tuesday is seen as particularly important, and Bloomberg expects that it likely will provide more evidence of the economy's strong rebound, with industrial production, retail sales and investment expected to have strengthened in November.
In addition, 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.
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.
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.
So, we will see. Amid the intense anxiety surrounding the final steps in the U.S. election, much of the world's economy is adding new worries of its own. Governments are widely engaged in intense policy fights large and small—clearly interventions and trends that producers should watch closely as they emerge, Washington Insider believes.