Fed officials are sharply divided on the direction of monetary policy
• Federal Reserve: All banks tested pass annual stress tests
Bank of England: Bank of England market valuations have improved but still lag the US
The Riksbank left its key interest rate unchanged at 3.75% in July
• Mexico's central bank left interest rates unchanged at 11%.
• Bank of Canada Governor: Further rate cuts are 'reasonable'
• Bank of Korea: Measures to stabilize the market will be taken if necessary
【Global Central Bank Dynamics】
• A summary of last week's speeches by Fed officials:
Governor Bowman said that the Fed has not yet reached the point where it can consider cutting interest rates, and if inflation moves towards 2%, it may consider cutting interest rates, inflation should ease with the formulation of the current Fed policy, monetary policy is currently tight, if inflation does not ease, I am still willing to raise interest rates again, the Fed remains "cautious" when weighing future Fed interest rate changes, loose financial conditions may push inflation higher, and the upside risk of inflation still exists.
Governor Cook said the policy was restrictive and put pressure on demand; The labor market is tight, but not overheated; Risks to employment and inflation targets are more balanced; At some point it would be appropriate to cut rates; Inflation is expected to slow sharply next year.
Atlanta Fed President Bostic said inflation is moving in the "right direction" and that rate cuts are likely in the fourth quarter, with four quarterly rate cuts of 25 basis points expected in 2025; Hopefully, there will be "absolute certainty" that inflation will return to 2% before the first rate cut, which should be seen as the first step in a series of rate cuts.
Richmond Fed President Barkin said that the fight against inflation is still unwon, and the US economy is expected to remain resilient, and now is not the right time to issue forward guidance.
San Francisco Fed President Daly said that inflation risks are now more balanced with employment tasks; Care must be taken not to ease interest rates too soon or stay on hold for too long; The strong labor market can be seen in the data; It needs to be steadfast and the Fed will not act preemptively when it is not necessary.
Chicago Fed President Goolsbee said that if there are new signs of stress in the economy, this should at least make the Fed consider whether it needs to keep its policy rate at its current level. He pointed to "several warning signs," including "consumer spending appears to be cooling," the recent increase in jobless claims, and a spike in consumer credit card debt delinquencies.
Cleveland Fed President Mester still believes that the Fed needs to be open to aggressive sales of mortgage-backed securities.
• The Fed said all 31 banks tested passed their annual stress tests; Banks reported higher losses than they did in the 2023 stress test due to higher balance sheet risk and more spending; Increases in bank credit card balances and rising delinquencies drove larger hypothetical losses; Charles Schwab, Bank of New York Mellon, JPMorgan Chase and Morgan Stanley were among the strongest performers; After the 31 banks tested passed the Fed's annual stress test, they generally announced large share buybacks or dividends.
• Bank of England said that UK bank market valuations have improved but still lag the US, maintaining a countercyclical capital buffer at 2%; Banks will use the Bank of England model for stress testing, the results of which will be published in Q4 2024; The global financial risk environment in the second quarter was "basically flat" with the first quarter, and the interest rate adjustment has not yet been completed, and the current market pricing is prone to significant changes.
The Riksbank left its key interest rate unchanged at 3.75% in July, in line with expectations.
• Mexico's central bank left interest rates unchanged at 11%, in line with market expectations. Mexico's central bank kept its inflation forecast unchanged at 4.0% at the end of 2024; The core inflation forecast for the end of 2024 was raised to 3.9% from 3.8% previously.
• Bank of Canada Governor Macklem said the central bank seeks to further regulate wage growth; And he further reiterated that it is "reasonable" to expect further rate cuts.
• The Bank of Korea vowed to strengthen monitoring of risk factors and take measures to stabilize the market if necessary, and said it was difficult to rule out the possibility of increased downward pressure on the won.
• RBA Assistant Governor Kent said the neutral rate is around 3.5%; The RBA considers the current cash rate setting to be restrictive; Recent data has reinforced the need to be alert to upside risks to inflation.
Brazil's second-quarter inflation report showed that the country's economic growth forecast for 2.3% in 2024 was raised from 1.9% previously.
【Market Watch】
• The European Central Bank plans to hold its annual symposium in Sintra, Portugal, from July 1 to 3, senior fixed income analysts at LBBW. The Federal Reserve and the European Central Bank will publish the minutes of their latest interest rate decision-making meeting. Market participants are likely to keep a close eye on these disclosures for clues on the direction of key interest rates in the coming months.
• The chief economist at UniCredit Bank believes that the PCE inflation rate in the United States in May is likely to fall to the lowest level since early 2021, marking substantial progress towards the 2% target set by the Federal Reserve. Inflation will improve this year as it has been largely stable since the beginning of the year. The decline in gasoline prices in May was a key factor in the improvement in inflation, and gasoline prices usually rise in the summer.
• Morgan Stanley said investors are advised to be bullish on GBPCAD due to the policy differences between the Bank of Canada and the Bank of England. The Bank of Canada may be more inclined to cut interest rates than the Bank of England, and the inconsistency may drive the appreciation of the pound against the Canadian dollar. The nature of the Canadian dollar as the funding currency enhances the attractiveness of long GBPCAD positions. If inflation in the UK remains elevated, it could limit further rate cuts by the Bank of England.
Analysts at Tickmill Group noted that in the face of previous market interventions and interest rate hikes that have not worked, the Bank of Japan now urgently needs to find effective means to promote the appreciation of the yen. While traders widely expect the Bank of Japan to announce a tapering of its bond purchases in July, the current risk assessment suggests that the likelihood of further interest rate hikes is also increasing, a move that is expected to strengthen the yen's exchange rate performance in the short to medium term. On the 26th, the exchange rate of the dollar against the yen reached its highest point since 1986, which has caused the Japanese government to be highly vigilant and ready to take corresponding measures at the appropriate time to prevent excessive depreciation of the yen.
【This week's highlights】
•Monday
20:15 ECB Governing Council member Nagel speaks
Time to be determined ECB to hold central bank forum
•Tuesday
02:00 ECB President Christine Lagarde speaks at the ECB's Central Bank Forum
09:30 The Reserve Bank of Australia (RBA) releases the minutes of its June monetary policy meeting
15:30 ECB Vice President Guindos moderates a discussion
21:30 Fed Chair Jerome Powell, ECB President Christine Lagarde and Brazilian Central Bank Governor Neto speak at the ECB's Central Bank Forum
•Wednesday
18:30 ECB Chief Economist Lien speaks
19:00 FOMC Perpetual Voter and New York Fed President Williams speaks at the ECB's Central Bank Forum
21:30 ECB Governing Council member Knott speaks at the ECB's Central Bank Forum
22:15 ECB President Christine Lagarde speaks
•Thursday
02:00 The Federal Reserve releases the minutes of its monetary policy meeting
19:30 The European Central Bank (ECB) releases the minutes of its June monetary policy meeting
•Friday
15:00 ECB Governing Council member Nagel speaks
17:40 New York Fed President Williams, FOMC Permanent Voting Committee, speaks
Editor: Wang Xiaowei
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