Likelihood of Japan
achieving 2% inflation target gradually increasing but not in a stage
where we can say so with enough certainty.
Key is whether wages
will keep rising and such practice become embedded in society.
Next year’s spring
wage negotiation is particularly important, watching development carefully.
There is uncertainty
on whether wage hikes will continue next year.
Another key factor
is whether firms will set prices based on assumption wages will rising.
YCC, negative short-term
rates will be kept until 2% CPI sustained.
We need to have more
conviction that wages will keep rising, rising wages lead to service
prices and economy remains strong, to ponder exit from easy policy.
If 2024, 2025
inflation forecasts are strong enough, we may be able to judge that
sustained achievement of 2% target is in sight even if 2026 forecast is
Hard to say chance
of ending zero interest rates this year is zero.
We don’t necessarily
need to wait until real wages actually turn positive in exiting YCC,
If we think there is
strong chance real wages will turn positive in the future, that may be
sufficient in making decision on whether to continue with YCC, negative
We need to confirm
whether pass-through of import prices dissipate, and whether
wage-inflation cycle kicks off as we expect, when asked on what conditions
need to be met to end YCC, negative rates.
Japan’s largest industrial
union UA Zensen will seek a 6% total wage increase, of which 4% will be base
pay hikes, at next spring’s negotiations, a union official said on Monday.
Annual wage negotiations effectively kicked off on Monday and will be concluded
on January 23, before Japanese blue-chip companies offer next year’s wage hike
plan in March.
Saudi Arabia and Russia
reaffirmed their commitment to extra voluntary oil supply cuts until the end of
Fed’s Cook (dove – voter)
touched on the rise of long-term yields and the risks around real estate:
near-term policy rates do not appear to be driving long end.
commercial property prices remain above levels historically associated
mortgage delinquency rates force sales, committal real estate prices
‘could decline sharply’.
is at high levels, but measures of debt servicing capacity remain strong
overall due to profits and limited impact of high rates so far.
In terms of debt,
household sector looks quite resilient, though there are emerging signs of
stress for those with weak credit.
among non-banks could amplify stress of tightened financial conditions and
anticipate all risks but can build resilience to shocks; particularly
important to enhance resilience of large banks.
We are determined to
reach 2% inflation objective.
Hope current policy
enough to return inflation to 2%.
ECB’s Holzmann (hawk –
voter) reaffirmed his commitment to hike rates further if needed as he remains
cautious on the inflation outlook:
I definitely belong
to those that think we should be very careful, that we should stand ready
to hike again if needed.
Not really worried
about the growth outlook because despite rate hikes, we still have
It could be much,
much worse and we are in pretty good shape there.
Don’t expect any
reduction in rates soon, eventually it will happen but for the time being
I don’t see it.
We need to stay
BoE’s Pill (neutral – voter)
expressed his concern about keeping restrictive policy for too long:
UK inflation remains
UK rate policy does
Sees more signs of
Higher UK rates are
hitting the supply side.
BOE is still working
to bring inflation down to 2%.
We are going to see
UK inflation for 2 more comparable levels with the rest of the world in
pretty short order.
We can’t make
promises about monetary policy outlook.
We need to retain
agility on monetary policy.
We still do not know
economic implications of conflict in Middle East.
constraint can be painful, but it is crucial to we get inflation back to
MPC feels it needs
to keep rates restrictive at least for a while.
It is premature to
talk about cutting rates.
Middle of next year
does not seem totally unreasonable for considering rate stands.
As things change
over those 9 months, we might need to reconsider monetary policy stance.
If we have
restrictive policy for too long, we risk creating recession and pushing
inflation below target.
rate is still probably positive.
Interest rates in
the future will probably be higher than in the pre-Covid era.
The Fed released the
Senior Loan Officer Opinion Survey (SLOOS) for Q3
tighter lending standards and weaker demand for commercial and industrial
loans across all firm sizes in the third quarter of 2023.
estate loans also saw tightened standards and reduced demand.
estate loans and home equity lines of credit experienced stricter
standards, except for government-backed residential mortgages, which
Demand for all
categories of residential real estate loans weakened, with significant net
shares of banks reporting a decline.
Credit card, auto,
and other consumer loans saw tightened lending standards and a weakening
revealed banks were less likely to approve credit card and auto loans for
borrowers with lower FICO scores compared to the beginning of the year.
risk tolerance, credit quality, and funding costs were the primary reasons
banks cited for tightening lending standards.
Fed’s Kashkari (hawk –
voter) expressed his concern about undertightening:
not get us back to 2% in a reasonable time.
Have concerns about
inflation ticking up again. That’s what I’m worried about.
Some prices and
wages data indicate that inflation could be settling somewhere north of
2%, and that would be very concerning to me.
I need more
information to come to a firm decision on interest-rate steps moving
forward. I am not ready to say we are in a good place.
Economy has proved
to be very resilient, inflation has come down.
Making progress on
inflation, job market is strong.
Fed has more work to
do to get inflation under control.
continue to spend.
Need to finish the
job on lowering inflation.
declaring premature victory over inflation.
US economy is so far
ahead of foreign economies.
Have to let
inflation and labour data guide us.
Japanese September wage
data beat expectations:
Average Cash Earning
YoY 1.2% vs. 1.0% expected and 1.1% prior.
(inflation adjusted) YoY -2.4%.
Overtime pay YoY
0.7% vs. 0.2%.
The RBA raised the cash
rate by 25 bps as expected:
resolute in its determination to return inflation to target.
CPI inflation is now
expected to be around 3½ per cent by the end of 2024 and at the top of the
target range of 2 to 3 per cent by the end of 2025.
Board judged an
increase in interest rates was warranted today to be more assured that
inflation would return to target in a reasonable timeframe.
tightening of monetary policy is required to ensure that inflation returns
to target in a reasonable time frame will depend upon the data and the
evolving assessment of risks.
uncertainties around the outlook.
inflation has been surprisingly persistent overseas and the same could
occur in Australia.
To date, medium-term
inflation expectations have been consistent with the inflation target, and
it is important that this remains the case.
High inflation is
weighing on people’s real incomes and household consumption growth is
weak, as is dwelling investment.
Wages growth has
picked up over the past year but is still consistent with the inflation
target, provided that productivity growth picks up.
information suggests that the risk of inflation remaining higher for
longer has increased.
The Eurozone PPI for
September fell further into contraction:
PPI Y/Y -12.4% vs. -12.5%
expected and -11.5% prior.
Fed’s Goolsbee (dove –
voter) reaffirmed his “wait and see” stance as he sees progress on inflation:
If the rise in long
term yields is coming from term premia, we have to take that into account.
You cannot answer
what number on long-term yield equals enough tightening.
We are also getting
positive supply-side developments in the economy.
The economy is weakening.
Job market is
getting into better balance.
So far, the slowdown
is what you would want, toward a more balanced growth and sustainable
Inflation has come
down a lot.
We might equal the
fastest drop in inflation in the last century.
As long as we are
making progress on inflation, the topic is then only how long we keep
rates at this level.
Inflation is more
important part of the mandate right now.
I don’t like pre-committing
what rates will be at the next meeting.
Still a lot of data
to parse before then.
My conditions for
Fed being done with rates are that we are clearly back on path to get
inflation back to 2%.
So far, we are on a
good path on inflation, but not done yet.
changing rates stances inflation rate.
clearly matter, but market doesn’t get to tell the Fed what to do.
There is possibility
of the “golden path” that allows us to get inflation down
Fed’s Waller (neutral –
voter) clearly sees the labour market cooling down:
Labor market is cooling
and getting close to average from before the pandemic; it’s ‘clearly
Labor supply also
appears to be normalizing back to pre-pandemic levels.
booming’ in Q3 GDP, Fed is watching that closely.
In central banking
terms, move up in 10-year yields was an ‘earthquake’.
mulling what drove long-term yields higher.
What people have in
mind now is for prices to return to earlier levels, and that is not going
Fed’s Logan (hawk –
voter) is watching carefully the long term rates:
All of us have been
surprised by resilience of US economy.
Inflation remains too high.
The core question is
if financial conditions today are sufficiently restrictive.
Labor market is still
Still looks like
trending towards 3% inflation.
We’ll need to see
tight financial conditions to bring inflation to 2%.
My expectation is
we’ll see growth slow, but we’ve been wrong before.
Key question on
long-term rates is what was driving it.
If it was on the
back of strong economic growth, FOMC would have to deliver on expectations.
If rise in long end
driving by term premium, it could do some of the Fed’s work.
Will watch to see if
retracement of long rates continues.
Fed funds rate
currently appears restrictive, financial conditions have tightened since
Some tightening is
due to long end, which can be volatile.
Don’t yet know
effects of tightened financial conditions on economic activity.
I remain willing to
support raising policy rate at future meeting.
Inflation remains high.
Labor market supply
and demand may be coming into better balance.
ECB’s Nagel (hawk –
voter) remains wary of inflation risks:
Wage growth and
decreasing labour supply will keep up pressure on inflation.
Imperative to remain vigilant.
We still face risks
that inflation outlook could turn out higher than expected.
This discussion (on
when interest rates can be cut) is not helpful. It is much, much too early.
Inflation is a
greedy beast, a very greedy beast.
When we have to deal
with a beast that is so stubborn, we have to be even more stubborn.
PBoC Governor Pan
Gongsheng touched on the central bank monetary policy and its future
growth model is more important than pursuing high growth rate.
continues to improve, 5% growth target expected to be successfully
growth momentum improves recently, production and consumption recover
steadily, employment and consumer prices stable.
Monetary policy will
pay more attention to cross-cyclical and counter-cyclical adjustments in
Will always keep
prudent monetary policy, support stable growth of real economy.
Will provide a good
monetary and financial environment to stabilize price, promote economic
growth and expand employment.
guard against overshooting risks of yuan exchange rate.
Will resolutely deal
with behaviours that disrupt market order.
Will prevent the
formation of one-sided and self-reinforced market expectations.
Spillover effect of
property market adjustments on the financial system are generally
Will guide financial
institutions to keep stable financing channels open through property
Some provinces are
making plans to resolve risks of small and mid-sized banks.
Supports LGFVs to
become market-oriented firms which do not rely on government credit and
are financially independent and sustainable.
The central bank
will provide emerging liquidity support to areas with relatively high debt
burdens when necessary.
control new govt-invested projects in areas with high debt burdens.
Will guide financial
institutions to resolve debt risks through debt extension and replacement
more to come.
ECB’s Kazaks (hawk – non
voter) reaffirmed the central bank commitment to bring inflation back to target
but expressed uncertainty around the outlook:
We are committed to our
target of 2% and we shall deliver it.
Our current outlook
forecasts that we will achieve it in the second half of 2025.
We are very clear on our
target and of course we are determined, and we shall reach it.
We cannot exclude the possibility that further rate increases might be
But we simply don’t know, so we will do the best we can, we will not hold
the rates at very high levels a minute longer than necessary.
ECB’s Lane (dove – voter)
welcomed the progress on inflation but added that progress in underlying
inflation wasn’t enough.
ECB’s Makhlouf (dove –
voter) highlighted the “huge uncertainty” that the central bank must navigate
and new risks that could emerge:
Early signals of the
impact of inflation and monetary tightening on borrower resilience are
becoming visible among tracker mortgages, personal loans and certain
corporate lending segments.
Having said that
there is huge uncertainty as to what lies ahead. A large part of monetary
tightening has yet to be passed through to the financial system and to the
economy; and while some risks are fading, new risks are emerging.
The Eurozone Retail Sales
for September slightly missed expectations:
Retail Sales M/M -0.3%
vs. -0.2% expected and -0.7% prior.
Retail Sales Y/Y -2.9%
vs. -3.1% expected and -2.1% prior (revised from -1.8%).
The BoC release the
Minutes of the October Monetary Policy Meeting:
Members were divided
on whether rates would need to be hiked again.
Some members of
governing council felt it more likely than not that overnight rate would
need to rise further.
Other members felt
5% would likely be enough to bring inflation to target.
There was a strong
consensus that with increasing evidence of falling inflation, BoC should
Agreed to revisit
need for rate hike at future decisions, after seeing more data.
The lack of downward
momentum in underlying inflation caused considerable concern, could mean
more time needed or that policy not restrictive enough.
inflationary risks had increased.
Persistence in core,
elevated expectations, wage growth and atypical corporate pricing
behaviour indicate high inflation is becoming entrenched.
The BoJ released the
Summary of Opinions report of the October Monetary Policy Meeting:
stable achievement of the price stability target is not yet envisaged with
sufficient certainty at this point, and thus the Bank needs to patiently
continue with monetary easing under yield curve control.
Will continue with
the framework of yield curve control and the negative interest rate
policy, at least as long as it is necessary for maintaining the price
stability target of 2 percent in a stable manner.
To confirm that this
aim has been achieved, it is necessary to carefully examine future
developments in wage hikes and whether the virtuous cycle between wages
and prices is operating from both sides.
uncertainties surrounding economies and financial markets at home and
abroad, it is appropriate for the Bank to increase the flexibility in the
conduct of yield curve control, so that long-term interest rates will be
formed smoothly in financial markets in response to future developments.
There is still a
distance to go before achieving the 2 percent target with the virtuous
cycle between wages and prices, it is important for the Bank to keep
supporting the momentum for wage hikes through continuation of monetary
In this situation,
the Bank should maintain the framework of yield curve control while
modifying the conduct of it.
The Chinese inflation
data disappointed once again as deflation remains present:
CPY Y/Y -0.2% vs. 0.1%
expected and 0.0% prior.
CPI M/M -0.1% vs. 0.0% expected
and 0.2% prior.
Core CPI Y/Y 0.6% vs.
PPI Y/Y -2.6% vs. -2.7%
expected and -2.5% prior.
Fed’s Harker (neutral –
voter) continues to support the “wait and see” approach:
Says he supported
the steady interest rate stance at latest FOMC meeting.
Fed will stay higher
for longer, no sign of near-term rate cuts.
Now is a time to
take stock of past rate hikes’ impact.
Next Fed rate choice
“could go either way” depending on the data.
Labor market is
moving into a better balance.
Unemployment rate to
rise to 4.5% in 2024 before falling.
will help achieve a soft landing.
Unclear yet whether
consumers have expended spending power.
No recession seen,
but growth is likely to cool off.
falling, to hit 3% in 2024, 2% after.
ECB’s de Guindos (dove –
voter) continues to support the “higher for longer” stance highlighting the
negative growth outlook:
We are not there
yet. We will see how things evolve month by month, but our approach now is
to keep interest rates at this level long enough to reach our target.
Any discussion about
lowering interest rates is clearly premature.
We believe that, if
interest rates are maintained at their current levels, inflation will
continue to fall and converge towards our target.
Our most recent
projections indicated some downside risks to growth; some of these risks
have now started to materialise and this will have an impact on inflation.
It might be
premature to say it, but leading indicators point to the growth outlook
being somewhat more negative than we previously projected.
inflation, the evolution may not be very different from what we projected
Fed’s Goolsbee (dove –
voter) highlighted the tightening from higher long term rates and how that
could increase the risk of overtightening:
evidence suggests that long rates, even more than short rates, have a very
substantial effect on real economic performance in a number of predictable
areas—construction, investment, consumer durables.
If that is
sustained, the Fed will have to think about the tightening impact of those
credit conditions on economic performance and would there be dangers of
ECB’s Centeno (dove –
voter) reaffirmed his “wait and see” stance:
We are at a plateau in
terms of interest rates.
Monetary policy is
working and helping inflation to come down.
Fed’s Barkin (hawk – non
voter) is debating whether the Fed has done enough and he’s not equating the
increase in long term rates to rate hikes:
Whether more is
needed from the Fed remains to be seen.
We are making real
progress on inflation.
The job isn’t done,
inflation remains too high.
Not yet convinced
inflation on a smooth glide path to 2%.
Will need economic
slowing to beat inflation.
Any downturn will be
less severe than past recessions.
I don’t see us as
I have a hard time
declaring ‘sufficiently restrictive’ at any point in time.
Long-term rates have
loosened but I don’t think of them as a policy variable or equate them to
A return to elevated
inflation will mean we need to look hard if we need to do more.
Core issue on
whether another rate hike is needed is inflation.
I anticipate more
disinflation on goods.
BoC’s Rogers talked about
the importance of adjusting to higher rates as she sees a world with
persistently higher rates:
feeling some pressure as they adjust to higher rates.
It’s easy to see a
world where rates are persistently higher.
It’s important for
people and businesses to adjust to a potentially higher-rate environment.
Adjusting early and
bit by bit lowers the risk of abrupt steps later.
Adjustment to higher
rates is well underway globally, there is less wiggle room for the global
financial sector in the event of a shock.
adjusting as they feel some pressure and juggle effects of inflation and
Data suggest most
Canadian businesses can service existing debt as servicing costs rise and
revenue growth slows.
Bank is watching
high levels of fixed-payment mortgage debt, given that 60% of mortgages
holders must renew by end-2026.
holders still expect they can deal with higher payments when they renew.
BoC is not yet
talking about reducing rates.
Does expect house
prices will likely come off a bit more.
Fed’s Paese (non voter)
leans on the hawkish side as she pushes back on the market’s rate cuts pricing:
Too soon to rule out
further US rate hikes.
Central bank still
has time to decide next step.
yield for signals on financial conditions.
Too soon to declare
victory on inflation.
report better balance in jobs market.
Not sure public
expectations are aligned with likely Fed policy path.
The US Initial Claims
slightly beat expectations, but Continuing Claims continue to increase
Initial Claims 217K
vs. 218K expected and 220K prior (revised from 217K).
1834K vs. 1.820K expected and 1818 prior.
Fed Chair Powell (neutral
– voter) remains totally committed to bring inflation down to target as he’s
keeping all the options on the table:
We are not confident
that we’ve achieved sufficiently restrictive policy.
If it becomes
appropriate to tighten policy further, ‘we will not hesitate’.
We will continue to
move carefully, decide meeting by meeting.
Attentive to risk
that stronger growth could undermine inflation progress, which could
warrant a monetary policy response.
We expect GDP growth
to moderate in coming quarters but remains to be see.
Labor market tight
but coming into better balance.
The US economy has
been stronger than expected this year.
Economy has been ‘remarkable’.
US economy may be structurally
more resilient to higher rates, but I don’t see evidence yet.
It’s hard to draw a
‘direct line’ from things like higher bond yields to a monetary policy
The Fed is “not
going to ignore” a significant bond tightening, but do not have to
make a decision now.
There are many
candidate explanations for higher bond rates, says there are 5-6 good ones.
We won’t ignore
higher yields but don’t have to make a decision now.
The bigger mistake
is not getting rates high enough.
R-star is not a
particularly useful way to think about policy.
The New Zealand
Manufacturing PMI fell further into contraction:
Manufacturing PMI 42.5
vs. 45.3 prior.
ECB’s Vujcic (neutral –
voter) has a soft landing as the base scenario but keeps all the options on the
If our current
projections materialize, then we will have a soft landing with a low
sacrifice ratio, meaning without a recession and without a significant
increase in unemployment.
We cannot be certain
that it will stay that way until we reach our goal, but in my view the
soft landing is still a central scenario.
However, we have to
stand ready either for a possibility of rate increases or rate cuts,
depending on incoming data in 2024.
The UK GDP for Q3 beat expectations
although growth was flat:
GDP Q3 Y/Y 0.6% vs.
0.5% expected and 0.6% prior.
GDP Q3 Q/Q 0.0 vs.
-0.1% expected and 0.2% prior.
GDP September M/M
0.2% vs. 0.0 expected and 0.1% prior (revised from 0.2%).
GDP September Y/Y
1.3% vs. 1.0% expected and 0.5% prior (revised from 1.3%).
The University of
Michigan Consumer Sentiment survey missed expectations by a big margin with inflation expectations continuing to climb:
Consumer Sentiment 60.4
vs. 63.7 expected and 63.8 prior.
65.7 vs. 69.5 expected and 70.6 prior.
Expectations 56.9 vs.
59.5 expected and 66.0 prior.
1-year inflation expectations
4.4% vs. 4.2% prior.
5-10 year inflation
expectations 3.2% vs. 3.0% prior.
highlights for next week will be:
Tuesday: UK Jobs
data, German ZEW, NFIB Small Business Optimism Index, US CPI.
GDP, Australia Wage data, China Industrial Production and Retail Sales, UK CPI,
US PPI, US Retail Sales, PBoC MLF.
Jobs data, US Jobless Claims, US Industrial Production, NAHB Housing Market
Index, New Zealand PPI.
Retail Sales, Canada PPI, US Building Permits and Housing Starts.