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Week Ahead: US Job Reports, UK Campain, The Fed

Headlines and Collections from Financial Times

Week Ahead: US Job Reports, UK Campain, The Fed


A monthly view of the US labour market will headline one last rush of economic data before the Federal Reserve’s final meeting of 2019.

Other central banks are due to make rate calls, as policymakers react to softer global growth and the ongoing US-China trade dispute.

Here’s what to watch this week.

US economy

Economists polled by Thomson Reuters expect the November jobs report to show the US unemployment rate held at 3.6 per cent with non-farm payrolls rising by 180,000, more than the 128,000 jobs added in October.

The jobs report, along with data on activity in the factory and services sectors, will help set the market’s expectations for monetary policy as the calendar turns to 2020.

There is a “strong chance of further rate cuts in early 2020”, said ING chief international economist James Knightley, citing weak global demand, a strong dollar and lingering trade tensions.

This week’s line-up of economic reports includes the first reading on consumer sentiment in December, as well as the Institute for Supply Management’s manufacturing index and its index measuring the vast services sector.

Wall Street widely expects the Fed to pause after cutting interest rates by a quarter-point three times in consecutive policy meetings. As political risks eased, policymakers signalled in October that the central bank was done slashing rates for now. The Fed’s next meeting will conclude on December 11.

Mr Knightley said:

Officials had already indicated that they wanted to take stock after three rate cuts implemented since July and with third-quarter GDP being revised higher and the jobs report likely showing a strong rebound in employment (admittedly thanks in large part to the ending of the strike at General Motors) they will have plenty to justify a pause.

Central banks

Before the Fed meets, central banks in Canada, Australia and India will have rate calls of their own this week.

The Bank of Canada is expected to leave rates unchanged, but ING said there is a “growing chance” of a rate cut due to Canada’s vulnerability to global demand and commodity price moves. A decline in exports contributed to weaker economic growth in the third quarter. Gross domestic product rose at a 1.3 per cent annualised rate in the period, down from 3.5 per cent in the prior quarter.

Economists also anticipate the Reserve Bank of Australia holding rates steady, even after a weak labour report for October.

India’s central bank is poised to cut rates amid a slowdown in economic growth.

UK election campaign

Parliamentary election races are heading into the final stretch with UK voters headed to the polls on December 12.

A highly anticipated YouGov poll showed Boris Johnson’s Conservative party in line to win its biggest majority since 1987. YouGov’s model accurately predicted the election result in 2017.

The BBC is scheduled to hold a debate between Mr Johnson and Labour’s Jeremy Corbyn on December 6.

US Federal Reserve considers letting inflation run above target

The Federal Reserve is considering introducing a new rule that would let inflation run above its 2 per cent target, in a bid to avoid entrenching sclerotic US price growth which has consistently undershot its goal.

The Fed’s year-long review of its monetary policy tools is due to conclude next year and, according to interviews with current and former policymakers, the central bank is considering a promise that when it misses its inflation target, it will then temporarily raise that target, to make up for lost inflation.

If the Fed adopts this so-called “make-up strategy”, it would mark the biggest shift in how it carries out its interest rate policy since it began to target 2 per cent inflation in 2012.

Policymakers are frustrated by the failure of prices to hit their target even as US unemployment has plumbed 50-year lows.

Consumer and investor expectations for what inflation will be in the future play a crucial role in determining the rate of price increases. In their meetings and speeches, Fed officials have expressed concern that their interest rate policy will become less effective if inflation expectations become anchored permanently lower, as they have in Japan and Europe.

Janet Yellen, former chair of the Fed, said the discussion was “a worthwhile thing” and the policy would be similar to the “forward guidance” the Fed used during the recovery, when it signalled to markets that it intended to keep short-term interest rates low well into the future. That drove down longer-term rates as well.

An explicit make-up strategy would be “more aggressive”, Ms Yellen said — if it were explained to markets effectively, investors would know at the start of a downturn that the Fed was already committed to keeping rates lower for longer during the recovery.

Some Fed members are worried that a make-up rule would rely too much on the as-yet-unknown will of future policy committees.

“Future committees might not be as comfortable with that formulaic approach,” said Mr Rosengren. “Which is why I prefer something that is a little bit more flexible, maybe not as constraining, but makes it a little clearer that we should be having [some inflation readings] over 2 per cent.”

Fed governor Lael Brainard, speaking to reporters last week, said that a strict make-up rule would be too hard to explain to the public. Like Mr Rosengren, she preferred a more flexible approach, such as suggesting a target range of 2 to 2.5 per cent inflation after a period of misses.

“That’s a fairly simple thing to communicate to the public,” she said. “It’s very important, obviously, for those rules to work effectively that financial market participants, households and businesses all understand what you’re doing.”



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