PBoC Keeps Interest Rates On Hold, Reuters Poll Sees 3 Fed Rate Cuts In 2024

The People’s Bank of China (PBoC) left its benchmark rates on hold as it was expected after its board meeting earlier in the morning. In the US, Goldman Sachs reduced its US recession forecast to 20% from 25%.

In other news, Brent crude oil has dropped 0.5% this morning to a near-two-week low of $77.29 per barrel as investors hope for success in the Middle Eastern peace talks.

PBoC Interest Rate Decision

The PBoC left benchmark lending rates unchanged on Tuesday, in line with market expectations. Some analysts expect one 25-basis-point reserve requirement ratio (RRR) cut in Q3 2024, followed by another 10-basis-point policy rate cut in Q4 2024.

Economists at Goldman Sachs (GS) noted that “the expansionary fiscal policy, along with other support including continued monetary policy easing, is needed to stem further weakening in domestic demand and to ensure real GDP growth stays close to 5% year-on-year in the second half of this year. We believe the growth target is important to the authorities and recent policy communications have indicated so.”

Canada Consumer Price Index July 2024 Report

The Bank of Canada (BoC) and Statistics Canada are expected to release their July 2024 CPI inflation reports later in the day. The Canadian CPI is expected at 2.5% on an annualised basis, lower than June’s 2.7% figure. The monthly figure is seen at 0.4%, rising from June’s -0.1%.

Commenting on the upcoming CPI inflation reports, analysts at RBC Economics said: “On Tuesday, we expect annual price growth for both the headline and excluding food & energy measures to hold steady at 2.7% and 2.9%, respectively, in July. We think the BoC will cut rates by 25 bps in each of the upcoming meetings in September and October.”

Reuters Poll Says 75 Bps Fed Cuts By End Of 2024

The U.S. central bank could cut the federal funds rate by 25 basis points in September, November and December taking the range to 4.50%-4.75% by end-2024, according to more than half of economists polled by Reuters. Last month, a similar survey published by Reuters forecast one rate cut less.

Barclays’ analysts commenting on the poll results noted that “the basis for the cuts that we have is mostly because inflation is coming down. It's not so much that activity is slowing ... We see a pretty resilient economy that's growing near trend and with that, we think inflation only ebbs gradually.” The US labour market has shown signs of weakening in the last few weeks, bringing forward the possibility of a policy adjustment by the Fed.

Goldman Sachs Reduces Odds For Recession In US

Goldman Sachs’ analysts seem to have become more confident that the US economy will avoid recession. In a note to investors, GS economists suggested that there is now a 20% probability that the US could fall into recession, 5% lower than their last forecast earlier in August, citing new data coming from the labour sector.

“Continued expansion would make the US look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time,” was noted in the report. GS economists said they see a 25bp rate cut from the Federal Open Market Committee (FOMC) after the September meeting, adding that a worse than anticipated August jobs report could trigger a 50bp cut.

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