Key events to watch in the week ahead: 23 – 29 September 2024

This week’s overview

The debate for Federal Reserve (Fed)'s rate cut is finally brought to rest this week, with policymakers eventually opting 11 - 1 for a 50 basis point (bp) cut. The outsized cut framed as purely a front-loading move and strong reassurances of a soft landing have offered the policy clarity that markets needed, which saw a boost in risk sentiments in its aftermath. The S&P 500 and DJIA both saw new record highs, while flows have returned to the tech sector as well, with the Nasdaq up 2.1% overnight.

Looking into the new week, here are four key events to watch.

24 September 2024 (Tuesday, 12.30pm SGT): Reserve Bank of Australia (RBA) interest rate decision

As widely expected, the RBA kept its official cash rate on hold in August at 4.35% for a sixth straight meeting. The tone in the accompanying statement and press conference was hawkish.

In the accompanying statement, the RBA noted that while inflation is easing, it is still well above the midpoint of the RBA's 2 - 3% target range. Adding to the cautionary note, the RBA highlighted that quarterly underly inflation has been above the midpoint of the target for 11 consecutive quarters and "has fallen very little over the past year."

The RBA retained the sentence that the Board wasn't "ruling anything in or out." It also retained the sentence at the end of the statement that "the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome."

The Fed's rate cut this week is not expected to influence the RBA’s decision next week. The RBA will likely leave the cash rate on hold at 4.35% on Tuesday and retain its hawkish rhetoric. While it is generally true that an RBA cutting cycle usually begins after the Fed starts cutting rates, there have been times when the two have moved in opposite directions, including as recently as 2015.

The RBA’s current stance is despite slow economic growth, stubbornly high inflation will prevent it from cutting rates before 2025. Nonetheless, the Fed's 50 bp rate cut this week lowers the threshold for a dovish shift from the RBA in the months ahead.

25 September 2024 (Wednesday, 9.30am SGT): Australia’s monthly consumer price index (CPI) indicator

In July, the monthly CPI indicator rose by 3.5% YoY, easing from 3.8% in June and above consensus expectations of 3.4%. The ex-volatile measure eased to 3.7% in July from 4.0% in June. Annual trimmed mean inflation eased to 3.8% YoY from 4.1% in June. The modest decline in inflation was primarily due to a fall in energy prices following the start of State and Federal government's energy rebates.

The RBA has repeatedly highlighted its frustration with the slow pace of inflation's decline towards its 2-3% target and the negative impact of high inflation. In a speech earlier this month, RBA Governor Michele Bullock said, “If high inflation becomes entrenched in the expectations of firms and households, it would be more difficult and costly to reduce.”

The preliminary expectation is for the monthly Indicator in August to ease to 3.0% YoY from 3.5%. However, this will likely change as analysts fine-tune expectations in the coming days. There are 16 bp of RBA rate cuts priced for December and a cumulative 72bp of rate cuts priced for May 2025.

26 September 2024 (Thursday, 9.50am SGT): Bank of Japan (BoJ) meeting minutes

At the July meeting, the BoJ minutes showed that policymakers expected monetary policy to remain accommodative. This comes despite an ‘outsized’ 15 bp rate hike to 0.25%, but a look at real interest rates do show that conditions remain far from restrictive, with real rates far below neutral.

There is room for further policy normalisation ahead, with higher inflation and wage growth data offering more confidence that a virtuous wage-price spiral will keep inflation “sustainable”. Expectations are for another rate hike in December this year, with more clarity to be sought from the upcoming minutes on policymakers’ views around the timeline.

27 September 2024 (Friday, 8.30pm SGT): US core Personal Consumption Expenditures (PCE) price index

At the recent Fed meeting, Fed Chair Jerome Powell has seemingly declared victory on the inflation fight, saying that upside risks to inflation has “diminished”. Policymakers’ focus has now clearly shifted to supporting the labour market and to ensure that a soft landing is achieved, with policymakers’ resolve reflected in the outsized 50 bp cut.

Thus far, headline and core PCE data have not been much of an issue for the Fed, with expectations for the disinflation trend to continue. Core PCE is expected to remain at 0.2% month-on-month, unchanged from the July read. Components in the CPI and producer price index (PPI) data that feed into PCE have also earlier suggested broad pricing pressures under control.