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[Quick Facts]

1. U.K. inflation falls unexpectedly to a 18-month low, easing pressure on its central bank.

2. U.S. House Republicans will vote on the defense spending bill Thursday.

3. Fed rate decision: One more rate hike likely this year.

4. New Zealand avoids recession as its Q2 GDP growth beats expectations.

[News Details]

U.K. inflation falls unexpectedly to a 18-month low, easing pressure on its central bank

U.K. inflation fell unexpectedly to its lowest level in 18 months, easing pressure on the Bank of England (BOE) to raise interest rates further. The CPI data makes it easier for the BOE to consider ending the monetary tightening cycle when it makes the interest rate decision on Thursday.

Meanwhile, British core inflation softened markedly to 6.2% in August, down from 6.9% in July. This was likely to be a result of easing pressures on demand for goods and services, including lower furniture and food inflation. Lower hotel prices reflected the fading post-pandemic vacation fervor. However, labor cost pressures are still too great, so inflation cannot fall to the BOE's 2% target at present. Another rate hike at the September meeting remains possible.

It is important to be wary of whether, after this meeting, the market expects the BOE to raise rates for the last time.

U.S. House Republicans will vote on the defense spending bill Thursday

U.S. House Speaker Kevin McCarthy said Republican lawmakers will try again to move forward on fiscal 2024 spending legislation on Thursday, with a procedural vote on a defense appropriations bill. After a two-and-a-half-hour closed-door meeting with Republican lawmakers, McCarthy said lawmakers were "very close" to agreeing on a short-term stopgap measure that would avoid a government shutdown on Sept. 30. He said House Republicans would also begin advancing other full appropriations bills for the fiscal year 2024, which begins Oct. 1. One day earlier, the House voted 214 to 212 to reject a motion aimed at debating an $868 billion defense appropriations bill for fiscal year 2024, with five Republicans joining Democrats to vote against it.

Fed rate decision: One more rate hike likely this year

The Federal Reserve left its target for the federal funds rate unchanged at a range of 5.25%-5.50%. The FOMC statement showed that 12 officials expected one more rate hike this year, while other seven expected rates to remain unchanged. The Fed's dot plot shows that the median federal funds rate at the end of 2023 is expected to be 5.6%, which means there may be one more rate hike this year. The federal funds rate is expected to end 2024 at 5.1%.

The latest economic outlook raised the U.S. economic growth forecast to 2.1% and 1.5% for this year and next, respectively, and lowered the unemployment rate forecast to 3.8% and 4.1% for this year and next, respectively. Core inflation is expected to be 3.7% and 2.6%, respectively, still above the 2% inflation target.

We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation, said Jerome Powell regarding the pause in rate hikes in September.

We're prepared to raise rates further if appropriate, Powell said. At the same time, he emphasized that the full effects of the current tightening have not yet been seen. Looking ahead, decisions will be made on a meeting-by-meeting basis. He never intends to send a signal about the timing of any rate cuts, which will come at some time.

The Fed has not made a decision on whether interest rates are sufficiently restrictive. Strong economic activity is the main reason for the need for more interest rate measures; the neutral rate may have risen and may be higher than the long-term one. A recession resulted from interest rate hikes "is always a concern."

New Zealand avoids recession as its Q2 GDP growth beats expectations

New Zealand's GDP grew by 0.9% in the second quarter, beating expectations of 0.4%. Its first-quarter GDP was revised to be flat from a 0.1% contraction. That means the economy has not contracted for two consecutive quarters, narrowly avoiding a technical recession.

It remains to be seen whether inflationary pressures will dissipate quickly enough to satisfy the Reserve Bank of New Zealand (RBNZ). Today's data increases the likelihood that at some point the RBNZ will feel the need to adopt the slight tightening policy it hinted at last month.

In August, the RBNZ reiterated that it was done raising interest rates, but its forecast suggested that there remained a low risk that it would do so again in the next 12 months. That forecast assumed the economy would return to growth in the three months to June before contracting again in the third and fourth quarters of this year.

[Focus of the Day]

UTC+8 15:30 Swiss National Bank announces interest rate decision

UTC+8 16:00 Swiss National Bank President Jordan speaks

UTC+8 19:00 Bank of England announces interest rate decision

UTC+8 20:30 U.S. Weekly Initial Jobless Claims

UTC+8 22:00 European Central Bank President Christine Lagarde speaks

UTC+8 22:40 European Central Bank Executive Member Schnabel delivers a speech