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[Quick Facts]

1. BOJ may raise the inflation forecast next month.

2. Bowman says more policy rate increases are needed.

3. BOE raises rates by 50 bps to 5%.

4. Nick Timiraos: Powell stresses possible rate hikes in coming months.

5. The Conference Board leading economic index for the U.S. fell for the 14th month in a row, showing future economic weakness.

6. Russian gas transit through Ukraine could end next year, with only one gas pipeline left between Russia and Europe.

[News Details]

BOJ may raise the inflation forecast next month

Data released by the Japanese government on Friday showed that core CPI rose 3.2% year-on-year in May, down from a 3.4% increase in April. Increases in the national CPI data and the previously released Tokyo CPI data both slowed down, but the core CPI rose higher than the forecast of 3.1%. Sticky inflation is expected to strengthen economists' view that the Bank of Japan (BOJ) may raise its quarterly inflation forecast in July. Some analysts believe that the BOJ will also adjust its yield curve control policy if the inflation forecast is revised upward significantly.

Bowman says more policy rate increases are needed

The Fed has made progress in reducing inflation, but despite a significant tightening of monetary policy, we still see inflation at an unacceptably high level, said Fed governor Michelle Bowman in a speech on Thursday. I believe that further increases in policy rates are needed in order to bring inflation down to our target over time, she said.

Bowman's words "rate hikes" also indicate that she, like most Fed officials, believes that the Fed will raise rates at least twice in the remaining four meetings in 2023, by 25 basis points each.

BOE raises rates by 50 bps to 5%

The Bank of England (BOE) voted 7-2 on Thursday to raise interest rates by 50 basis points to 5%, exceeding market expectations. It was the largest rate hike since February. Silvana Tenreyro and Swati Dhingra opposed the rate hike, saying that much of the impact of past tightening has yet to be seen and forward-looking indicators pointed to steep falls in inflation and wage growth ahead.

The BOE said in the minutes published that day that recent inflation data showed upside risks, suggesting more protracted inflation than expected. If there is evidence that inflationary pressures persist, further tightening of monetary policy will be needed.

This move demonstrates the BOE's determination to keep inflation under control. The U.K. benchmark interest rate is expected to peak at 5.5% in the coming months.

Nick Timiraos: Powell stresses possible rate hikes in coming months

Jerome Powell said today that a pause in rate increases last week was because the Fed wanted to slow its fastest-ever pace of rate hikes, wrote Nick Timiraos on Thursday. But he stressed that interest rates could be raised again in the next few months and most Fed members saw space for rate increases, Timiraos wrote. Fed officials now believe that their past interest rate hikes and recent pressures on the banking sector could ultimately cause a more severe economic slowdown than expected. They are trying to balance that risk. They also face the risk that the economy may be more resilient than expected, so the too-high inflation will require them to raise interest rates higher than expected.

The Conference Board leading economic index for the U.S. fell for the 14th month in a row, showing future economic weakness

The leading index for the U.S. continued to decline in May after falling for the past 14 months, indicating weaker economic activity ahead. Rising interest rates coupled with persistent inflation will continue to further dampen economic activity. While the second quarter GDP forecast was revised from negative to modest growth, the U.S. economy is expected to contract between the third quarter of 2023 and the first quarter of 2024. A recession is likely due to continued tightening of monetary policy and a reduction in government spending.

Russian gas transit through Ukraine could end next year, with only one gas pipeline left between Russia and Europe

According to the Financial Times, Ukraine's Energy Minister German Galushchenko said that one of the last few Russian gas pipelines to Europe could be cut off by the end of next year when Ukraine's supply contract with Gazprom expires. It is highly unlikely that Kyiv and Moscow will agree to renew the five-year transit contract which was first signed in 2019, even though this pipeline through Ukraine carries nearly 5% of Europe's total gas imports, added Galushchenko. The energy minister said Europe is better prepared for a further slowdown in supply. In the past, Europe had to adapt to less supply by reducing demand and buying alternative imports such as liquefied natural gas. Without the transit route through Ukraine, the only pipeline carrying gas from Russia to Europe would be the TurkStream, which supplies gas to southeastern European countries and contributed to nearly 3% of Europe's gas imports in May.

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