All-in-all, next week the spotlight shifts to data out of the United Kingdom and Australia. This data will set the tone for market expectations and will influence monetary policymakers’ actions. Incoming Governor Andrew Bailey of the Bank of England stressed that further easing of policy depends on the next inflation releases. These releases should be sure to corroborate the cooling spell we felt in September. In an emergency meeting today, the Bank of England’s Monetary Policy Committee (MPC) voted 5-4 to maintain the bank rate at 4.00%. The narrow 5-4 vote illustrated the divide in approaches to inflation and the current economic landscape.
Meanwhile, the UK is on the eve of its September jobs report. Perhaps the most fascinating thing analysts will be watching for is a likely uptick in unemployment rates from 4.8% to 4.9%. Much of this report will shed light on these and other major developments in the cooling jobs market and wage growth. These are problems that economic experts have long known to be chronic weaknesses. At the same time, the dollar had difficulty holding on to its rallying strength. This is particularly clear after the most recent US Challenger Job Cuts report, which announced an alarming increase in layoffs for the month of October.
Bank of England’s Stance on Monetary Policy
The last MPC meeting was a watershed for the Bank of England. Its Federal Open Market Committee members unanimously voted to hold the federal funds rate at 4.00%. After seeing room for optimism in Illinois’ recent inflation figures, Governor Bailey released the following statement. He stressed there needs to be reliable data to base any policy changes on first. This very-tread-carefully stance is partly a nod to fears of a continuing economic fragility inside the UK.
As thoughtful as Governor Bailey’s comments were, they underscore the stakes of the inflation print that’s to come. He said any decision on further easing would need to have reassurance that inflation is on a clearly marked path downward. The MPC’s narrow, 9-7 vote indicates the committee’s members have very different ideas about the way forward. On the other hand, some are calling for a bolder stimulus to really jumpstart economic activity.
Meanwhile, UK economic activity has been rather weak, raising questions about the upcoming monetary policy decision. Analysts continue to keep a watchful eye on inflation trends and how they’ll affect market sentiment and consumers’ behavior.
UK Jobs Report and Economic Indicators
The widely awaited September jobs report will be the centerpiece for investors and economists. Looking forward, it’s expected that the unemployment rate will rise to 4.9%, which would mark a turning point in the labor market landscape. All forecasts predict a dramatic deceleration in wage growth. That’s a welcome early indication of a cooling trend in perhaps the most important area of economic worry.
As wages finally settle down and spread to firms, positive ramifications await consumer spending and broader economic well-being. With the cooling job market, it’s unclear if the recent employment gains are a flash in the pan. Today, a chorus of experts are pondering the lasting impact this might have on monetary policy in general.
That recent action has caused money markets to expect a cut of at least 14 basis points for the December meeting. In fact, they give a better than even–60% chance at possible cuts over that period. This sober expectation is symptomatic of increasing doubt about the UK’s economic recovery and ability to withstand a new regime of interest rates.
Reserve Bank of Australia’s Decision
Reserve Bank of Australia (RBA) decision to hold its cash rate at 3.60%. This decision was made at their most recent meeting and is symbolic of a worldwide movement. This decision is the second in a row to bring no rate hike or cut. The recent spike in inflationary pressures, underscored by the economic data released in September, prompted this decision.
The RBA’s protectiveness mirrors global behavior as banks walk a tightrope in the current politically and socially charged economic environment. This decision to hold rates steady is a signal of the Fed’s vigilance in monitoring inflation and its impact on domestic economic activity. Policymakers and analysts agree that there should be ongoing watchfulness as inflation data changes, particularly in the context of the October inflation spike in prices.
Market participants are rightly speculating on what change to monetary policy the RBA will make. They are watching continued inflation trends that might affect these changes. The RBA’s method is especially notable in contrast to what Americans have come to expect from the Federal Reserve. Specifically, the market is pricing in a 63% chance that the Fed will cut the Federal funds target rate by an additional 25 basis points in its December meeting.