**Weekly Macroeconomic and Monetary Policy Overview**
Original Source: Forex Factory – “Weekly Macro and Policy Wrap-Up”
Original Author: Vassilis Karamanis
As we move beyond the first quarter of 2024, global financial markets are adjusting to a constantly evolving macroeconomic landscape, influenced by a combination of central bank policies, inflation momentum, employment data, and geopolitical developments. In a week marked by policy updates and shifts in expectations, here’s a detailed summary of recent macroeconomic trends and monetary policy shifts across major economies, with a focus on the US Federal Reserve, the European Central Bank, the Bank of Japan, and others.
This overview, based in part on the analysis by Vassilis Karamanis of Forex Factory, integrates additional information and supplementary insights from reputable economics and financial market sources, such as Bloomberg, Reuters, and the IMF.
## United States: The Fed’s Policy Dilemma Continues
The Federal Reserve continues to face the tough balancing act of corralling inflation without stifling economic momentum. Data releases over the past week painted a complex picture of the U.S. economy.
**Key Developments:**
– Headline Consumer Price Index (CPI) remained elevated, with inflation not retreating at the pace markets had hoped for.
– Core inflation, which strips out food and energy costs, has remained sticky. Year-over-year core CPI rose by 3.6% in April, above the Fed’s 2% target.
– Labor market data, particularly weekly jobless claims and non-farm payrolls earlier in the month, showed resilience, suggesting continued strength in employment.
– Retail sales data presented a mixed picture. While consumer spending is still robust, there’s evidence of moderation, possibly in response to elevated borrowing costs.
**Implications for Policy:**
– Federal Reserve Chair Jerome Powell has reaffirmed the need for a cautious, data-dependent approach. While rate cuts remain a topic of market speculation, policymakers are hesitant to loosen monetary policy until inflation shows sustained progress toward the 2% target.
– The probability of a rate cut in 2024 has decreased slightly, according to CME FedWatch Tool, with most investors now pricing in the first possible cut for late Q3 or early Q4.
– The yield curve remains inverted, reflecting uncertainty and potential growth concerns over the medium term.
**Market Reaction:**
– Treasury yields rose moderately following the inflation data, particularly at the short end, as markets reassessed earlier expectations for policy easing.
– The US dollar saw modest strength on the back of relatively hawkish expectations for the Fed compared to peer central banks.
## Eurozone: ECB Balancing Growth Risks With Policy Normalization
The European Central Bank (ECB) remains in a more flexible position compared to the Fed, reflecting somewhat more favorable disinflation trends across the continent. However, policymakers remain cautious given the economic fragility in key Eurozone economies.
**Recent Highlights:**
– Annual inflation in the Eurozone slowed to 2.6% in May, down from 2.8% in the previous month, according to Eurostat. Core inflation stands at around 2.8%, still uncomfortable but showing consistent downward direction.
– The latest PMIs (Purchasing Managers’ Index) showed modest expansion in services but continued contraction in manufacturing.
– GDP across the Eurozone grew at a tepid quarterly rate of 0.3% in Q1 2024, with Germany barely escaping recession.
**ECB Policy Stance:**
– ECB officials, including President Christine Lagarde, have signaled optimism on inflation but remain wary of declaring victory too soon.
– At the June policy meeting, the ECB is widely expected to begin a gradual easing cycle, potentially cutting interest rates by 25 basis points.
– Market participants are pricing in two to three 25 bps cuts by the end of 2024.
**Risks Ahead:**
– Persistent weakness in Germany and rising political uncertainty in parts of
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