Warsh’s Jackson Hole Fed signals are needed by investors
Investors are anticipating Kevin Warsh’s insights regarding the appropriate response of the US central bank to persistent inflation as he addresses the annual gathering in Jackson Hole, Wyoming, on Friday. It remains uncertain whether he will fulfilll his commitments. The chairman’s communications strategy is experiencing a challenging beginning. Following the July policy meeting, Warsh provided minimal commentary regarding his perspectives on the economy and refrained from delivering any forward guidance concerning interest rates. Investors perceived his remarks as indicative of insufficient determination to restore inflation to target levels, leading to a subsequent rise in long-term bond yields, which reached a two-decade high. For the first time in his capacity as the head of the world’s premier central bank, Warsh is set to deliver keynote remarks at the Kansas City Fed’s annual Economic Policy Symposium. With Treasury yields remaining high due to persistent inflation and worries about the fiscal deficit, he faces increasing pressure to adopt a more proactive stance akin to his predecessors and provide clearer indications of how the Fed may respond in the coming months. However, with five task forces established by Warsh currently examining critical components of the Fed’s operations, including a focus on communications, the chairman may merely restate his dedication to price stability without detailing the Fed’s strategy for achieving it.
More recent data have indicated that inflation, although still exceeding the Fed’s 2 percent target, may be beginning to moderate. On Wednesday, the government is set to release the most recent personal consumption expenditures price index, which serves as the Federal Reserve’s favoured measure of inflation. Economists project that the PCE price index experienced an increase of 3.6 percent in July compared to the same month last year. While that would represent the least significant annual increase in four months, oil prices have resumed their upward trajectory this month as the conflict in Iran continues. The same report is anticipated to indicate minimal variation in inflation-adjusted personal spending. Other economic releases in the upcoming week encompass the revised second-quarter gross domestic product on Wednesday and July new-home sales on Tuesday. On Friday, the Bureau of Labour Statistics is set to release its preliminary benchmark payrolls revision for the year ending in March. Turning north, Canada is poised to unveil second-quarter GDP figures, with analysts forecasting that the economy has expanded at its most rapid pace since the beginning of 2023. Potential upward revisions to earlier quarters may eliminate the country’s designation as being in a technical recession.
That will provide little distraction from the escalating trade relationship with its neighbour: US-Canada talks fell apart at the last minute on Friday nite, with fresh 50 per cent tariffs on billions of dollars of Canadian goods taking effect and Prime Minister Mark Carney promising to retaliate. In other developments, significant German economic indicators, preliminary inflation figures from Japan, France, and Mexico, along with a crucial vote regarding Iceland’s potential resumption of accession discussions with the European Union, will be in the spotlight. Central bankers in South Korea and the Philippines are poised to increase interest rates, whereas Hungary appears to be considering a reduction.
Asia
Asia-Pacific is gearing up for a packed agenda. Alongside key rate decisions, inflation readings will significantly influence the policy outlook, while activity data will provide insights into economic momentum. China continues to be a significant area of interest, alongside Japan and India, with Australia also experiencing a substantial influx of releases. The Bank of Korea’s meeting on Thursday will be a significant occasion following the initiation of a tightening cycle in July, marked by an increase in the benchmark rate to 2.75 percent. Governor Shin Hyun Song has indicated that all options remain on the table for August; however, certain economists suggest that authorities might opt to delay until October in order to evaluate the effects of the actions taken in July. On the same day, central bankers in the Philippines will deliberate on a potential increase to the key rate by 25 basis points, bringing it to 5 percent. A day earlier, Thailand’s central bank is anticipated to maintain its current settings. Australia will publish the minutes from the Reserve Bank’s August meeting on Tuesday, accompanied by comments from senior RBA official David Jacobs. Bank of Japan Deputy Governor Ryozo Himino is scheduled to speak on Thursday.
Inflation also assumes a prominent role. Australia will release its monthly consumer price data on Wednesday, which will include the trimmed-mean inflation measure. This metric serves as a crucial component for the Reserve Bank of Australia’s economic outlook, particularly in light of ongoing worries regarding inflationary pressures. Japan’s Tokyo CPI, following July’s reading of 2 per cent, is set to be released on Friday and will be scrutinised to assess whether inflation is sufficiently robust to maintain the BOJ’s historic normalisation trajectory. On Monday, Singapore will publish its consumer price index data. China will release its industrial profits for July on Thursday, following a rise in earnings from the previous year in June. This report will provide investors with further insight into the health of the corporate sector in the world’s second-largest economy. India’s industrial production data is set to be released on Friday, and it will be closely monitored for indications that domestic economic momentum continues to show resilience. Japan is set to release data on department-store sales, services producer prices, and machine-tool orders throughout the week. Additionally, August jobless figures will be available on Friday, following a previous reading of 2.5 percent for July. Australia’s economic calendar features the Westpac leading index, construction work, private capital expenditure, and household spending. Together with inflation and the RBA minutes, these releases are expected to offer a more comprehensive view of the economy and the policy outlook.
Europe, West Asia, Africa
With the German economy exhibiting stronger performance than previously anticipated, investors will turn their attention to the data releases scheduled for Tuesday, which will include the crucial Ifo indicator along with a detailed analysis of GDP contributors. At the conclusion of the week, the anticipated flash inflation figures from France and Spain are expected to indicate a further increase in price pressures, reaching 2.6 percent and 4.6 percent, respectively. Euro-area data will be disclosed next week; however, European Central Bank Chief Economist Philip Lane has cautioned that inflation in the region is expected to remain near the 3 percent mark for the rest of the year. That elucidates the rationale behind the anticipated rate hike for the upcoming month, despite officials maintaining the current policy in July. An account of that meeting is scheduled for publication on Thursday. ECB officials remain largely on summer recess, although a number will attend the Jackson Hole conference, where Executive Board member Isabel Schnabel is set to join a panel discussion on Friday. Minutes from the Riksbank’s August policy meeting are set to be released on Tuesday, coinciding with expectations that officials in Hungary will implement a rate cut. Further south, Nigeria’s GDP print on Monday is expected to reveal another robust figure, as elevated oil prices likely stimulated production and enhanced foreign-currency liquidity, thereby bolstering consumption. Botswana’s central bank is set to convene on Thursday.
Latin America
Mexico gets the ball rolling with its mid-month inflation report, which may be a harbinger of some of the heating up seen by analysts for the rest of 2026 and 2027. The initial consensus indicates that consumer prices are rising, moving up from 3.14 percent in the latter half of July, while the core measure is creeping back toward the 4 percent upper limit of the central bank’s target range. Banxico anticipates that both headline and core inflation will converge to its 3 percent target by the end of 2027. However, local analysts surveyed by the bank presently project inflation rates of 3.85 percent and 3.84 percent, respectively. Brazil will also release mid-month inflation data. In contrast to Mexico, consumer prices in Latin America’s leading economy appear poised to decline further, potentially falling below the 4.5 percent upper limit of the central bank’s target range. Local analysts continue to anticipate elevated readings as the year concludes, projecting the final figure for 2026 to exceed 5 percent. Mexico’s final output figures for April-June appear poised to align with the preliminary estimates, which exceeded expectations due to a widespread expansion.
Nonetheless, challenges such as fiscal constraints and uncertainties surrounding trade and tariffs have largely limited 2026 GDP projections to approximately 1.2 percent. Banxico’s quarterly report released midweek may refrain from altering inflation projections following policymakers’ decision at their August rate meeting to advance the convergence timeline to the fourth quarter of 2027. Conversely, GDP estimates could experience a modest upward adjustment, particularly the 2026 forecast, which presently stands at a 1.1 percent midpoint. While that figure has decreased from a prior estimate of 1.6 percent, it remains nearly double Mexico’s projected output for 2025 and would effectively end a four-year period of deceleration. It may be too early to anticipate any adjustments by Banxico to its monetary policy guidance, given that real interest rates remain firmly within the 1.8 percent to 3.6 percent range that policymakers consider neutral.
