Economics Weekly: Markets Continue to Adjust Rate Cut Expectations Amid Mixed Fed Views
US: FOMC minutes signal worries over lack of progress on inflation. While inflation has eased over the past year, recent months saw the return of the ‘higher-for-longer’ narrative as a sl...
Chief Investment Office - Hong Kong24 May 2024
  • US: FOMC minutes indicate worries over stubborn inflation; slowing Chinese economy and CRE risks remain key downside risks to economic activity
  • Japan: Core inflation slowed to 2.2% in April after rising 2.6% in March, marking a second straight month of decline; weak yen continues to erode purchasing power
  • Singapore: On track for 2%+ growth this year as global downside risks linger; manufacturing poised for a fragile recovery in 2024 after weak 1Q
  • Thailand: 1Q24 upside growth surprise and a better cyclical outlook lower rate cut odds; tourism and private consumption to support growth with the digital wallet policy posing upside risks
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US: FOMC minutes signal worries over lack of progress on inflation. While inflation has eased over the past year, recent months saw the return of the ‘higher-for-longer’ narrative as a slew of readings indicated inflation was more stubborn than officials had expected for the year. Minutes of the Federal Open Market Committee (FOMC) meeting (held on 30 Apr - 1 May) released this week emphasised that rates could be kept high for some time as inflation remains sticky. Some officials questioned whether rates are sufficiently restrictive, and a few indicated a willingness to tighten policy further. This adds an additional degree of uncertainty and the market pushed 2Y to 5Y yields up in the process.

FOMC participants also noted downside risks to economic activity, including a slowing Chinese economy and the deterioration in the commercial real estate (CRE) market, sharply tightening financial conditions. FOMC discussions were based on the stronger labour market and inflation data in 1Q24 and excluded the disappointing nonfarm payrolls or CPI inflation in April.

Global growth momentum has sapped a tad. While the US economy is still looking strong overall, there are marginal signs of weakness, ranging from ISM Manufacturing orders to retail sales. The data from China are mixed, with cooling exports and retail sales on one hand and improving labour market on the other hand. Europe has seen soft factory orders and construction, but services remain strong. Not quite recession watch, but we believe weaknesses are surfacing.

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