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[Quick Facts]

1. ECB's Villeroy: Options remain open at coming meetings.

2. ECB's Knot: A further hike is still a possibility, but not a certainty.

3. The U.S. risks a government shutdown.

4. Recession mentions soar to a 5-year high in the latest Beige Book.

[News Details]

ECB's Villeroy: Options remain open at coming meetings

Interest rates are close to the peak, said François Villeroy, European Central Bank's (ECB) Governing Council member and Governor of the Bank of France, on September 6, but he declined to state whether this meant a rate hike or a pause next week. Our options remain open for this meeting, and for coming meetings as well, Villeroy said, but I believe we are close or very close to the peak of interest rates.

ECB's Knot: A further hike is still a possibility, but not a certainty.

Most investors betting that the European Central Bank will leave interest rates unchanged next week may have underestimated the likelihood of a rate hike, said Klaas Knot, ECB Governing Council member and President of De Nederlandsche Bank, in a speech on Wednesday. While the slowdown in the euro area economy will certainly dampen demand, the inflation forecasts to be released next week will not differ much from those published in June. Such an outlook only envisages a return to target levels in the medium term, and whether to raise interest rates for the tenth time in a row is a "tough decision."

We've reached the finessing phase of the tightening cycle. Tightening - a further hike - is still a possibility, but not a certainty

The U.S. risks a government shutdown

The U.S. government is likely to shut down early next month as Congress has run out of time to reach a temporary spending deal and House conservatives have vowed to derail negotiations unless spending cuts are met. Senators return to Washington this week to discuss a short-term appropriations compromise to keep government services, salaries and benefits flowing after the fiscal year ends Sept. 30.

House members will be back to work next week. Democrats want the stopgap measure to include billions of dollars in aid to Ukraine - a sticking point in the debate among House Republican hardliners - as well as relief funds for victims of disasters such as the Maui wildfires and Florida hurricanes. While most forecasters see little risk of recession, a government shutdown would hit the economy at a vulnerable time.

Recession mentions soar to a 5-year high in the latest Beige Book

The Beige Book shows that U.S. consumption remains strong, especially spending on tourism and other services, but there are also some signs of weakness. Slowing demand for goods is putting pressure on manufacturing, and high-interest rates continue to weigh on the housing market. Supply shortages in the resale market persisted, as homeowners with low-rate mortgages were reluctant to sell. Nearly all Districts reported that the inventory of homes for sale remained limited.

There is evidence in some Districts that consumers have exhausted their savings and are relying more on borrowing to support spending. Consumers spend more on tourism than expected, and retail spending continues to slow. Most Districts reported a general slowdown in price growth, with the manufacturing and consumer goods sectors slowing more rapidly.

On the labor market front, job growth is sluggish nationwide, with more people unable to find work immediately, although more people are entering the labor market. Growth in labor cost pressures has intensified in most Districts, and firms expect wage growth to generally slow in the near term.

In addition, the Beige Book contained the fewest mentions of inflation since January 2022, while mentions of the word "slow" remained relatively high and recession mentions reached their highest level since at least 2018.

[Focus of the Day]

UTC+8 11:10 Reserve Bank of Australia President Lowe speaks

UTC+8 15:00 ECB Governing Council members Wensch and Holzmann deliver speeches

UTC+8 15:30 European Central Bank Governing Council members Villeroy and Knot deliver speeches

UTC+8 16:30 European Central Bank executive member Elderson delivers a speech

UTC+8 17:30 European Central Bank Governor Holzmann speaks

UTC+8 22:00 Philadelphia Fed President Harker speaks on the future of financial technology

UTC+8 02:10 Next Day: Bank of Canada Governor Macklem delivers a speech on the economic progress report

UTC+8 03:30 Next Day: New York Fed President Williams delivers a speech

UTC+8 03:45 Next Day: Atlanta Fed President Bostic speaks on the economic outlook