Latest / Markets with Megan: A Quick Financial Markets Update / Global Central Bank Policy Shifts Amid Economic Uncertainty | Episode 160 | 08-05-24

Transcript

Global Central Bank Policy Shifts Amid Economic Uncertainty | Episode 160 | 08-05-24 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: It's been the week of the central banks.
• 0:02
  Megan Horneman: It is Thursday, August 1st, and you are listening to Markets with Megan.
• 0:07
  Megan Horneman: We wanted to talk a little bit about some of the action we've been seeing from central banks this week.
• 0:12
  Megan Horneman: It hasn't just been the Federal Reserve, which was yesterday, but we got this morning the Bank of England, we've had the Bank of Japan, we've had the Central Bank in Brazil.
• 0:20
  Megan Horneman: All of these banks met and made assessments on monetary policy.
• 0:24
  Megan Horneman: So let's just break down some of the information that we got.
• 0:28
  Megan Horneman: The Bank of Japan actually raised interest rates.
• 0:31
  Megan Horneman: They did this because they're trying to defend the currency, which has been very, very weak here in recent months.
• 0:36
  Megan Horneman: Four months ago, if you remember, they raised their interest rates from zero for the first time in 17 years, so they're now sitting at 0.25.
• 0:45
  Megan Horneman: On the flip side, you had the Bank of England, which came in this morning and cut their interest rate from 5.25 to 5%.
• 0:53
  Megan Horneman: It was a very mixed though vote.
• 0:56
  Megan Horneman: It was a split, basically five to four on cutting interest rates.
• 0:59
  Megan Horneman: They wanted to make it very clear that this is not going to be a consistent rate cutting cycle.
• 1:06
  Megan Horneman: It's just too early.
• 1:07
  Megan Horneman: They need more information from the data.
• 1:10
  Megan Horneman: What they said was it was just a reduction of their restrictive policy.
• 1:14
  Megan Horneman: They said that they will continue to look at monetary policy at each meeting.
• 1:18
  Megan Horneman: So again, they gave the cut, but more of like a hoggish cut is what we like to say.
• 1:20
  Megan Horneman: Again, they gave the cut, but more of like a hoggish cut is what we like to say.
• 1:25
  Megan Horneman: The Central Bank of Brazil they left rates unchanged.
• 1:28
  Megan Horneman: They did note that there's greater caution, though.
• 1:31
  Megan Horneman: They increased their upside and downside risks to three from two at the last meeting, and they're watching that deterioration in inflation expectations.
• 1:40
  Megan Horneman: So again, the Central Bank of Brazil kept rates unchanged.
• 1:45
  Megan Horneman: Now let's talk about the Fed, which is obviously more impactful for us, and the Federal Reserve met yesterday.
• 1:50
  Megan Horneman: They also kept interest rates unchanged, but they did open up the door here for a September meeting that if he sees the inflation moving down quickly, then he would be open to cutting interest rates in September.
• 2:07
  Megan Horneman: They still kept that greater confidence is needed on inflation, though.
• 2:11
  Megan Horneman: That comment they've had consistently, but the change in their comments was that, instead of just focusing on inflation, they mentioned their dual mandate.
• 2:20
  Megan Horneman: And remember, their dual mandate is not only price stability with inflation, but also maximum employment, and what we've seen is some cracks in the labor market.
• 2:29
  Megan Horneman: The employment rate now sits at 4.1 percent and what we saw this morning was a pretty big uptick here in continuing claims.
• 2:38
  Megan Horneman: Continuing claims jumped to the highest level since November of 2021.
• 2:43
  Megan Horneman: Now there's some seasonality effects in July when it comes to the jobless claim.
• 2:48
  Megan Horneman: So we'll get again.
• 2:50
  Megan Horneman: We get that report every Thursday, but that's something I think the Fed's probably paying attention to.
• 2:55
  Megan Horneman: Tomorrow is the more important report.
• 2:57
  Megan Horneman: It's the unemployment report that we'll get for the month of July, and also keep in mind the Fed will have two employment reports and multiple different reports on inflation between now and when they meet in September.
• 3:09
  Megan Horneman: So the rate cut for September is on the table.
• 3:12
  Megan Horneman: If the employment market continues to weaken and inflation continues to move in the right direction, it is possible.
• 3:18
  Megan Horneman: But we are not in the camp that this is going to be the start of an aggressive rate cut cycle.
• 3:23
  Megan Horneman: The data just does not support that at this time.
• 3:27
  Megan Horneman: Instead, if they do come in September, it's just going to be kind of a fine tuning and we'll probably get that hawkish cut, like we've seen from the ECB as well as the Bank of England.
• 3:37
  Megan Horneman: That's all today.
• 3:38
  Megan Horneman: Please don't forget to like, subscribe, hit that alarm bell on where you get your podcasts and if you like what you heard today, please share it with friends, colleagues, family, and you can find our entire library of our podcasts at arketswithmeganfm.
• 3:52
  Megan Horneman: Thank you.