Next week’s economy: January 24-28
All eyes will be on the Fed on Wednesday to see if it will finally raise interest rates.
Chances are that’s not the case: most observers are expecting a first move in March. This is largely because the Fed does not want to surprise the markets and wants to verify that the Omicron variant has not weakened the economy too much. This could, however, reduce quantitative easing again and hint at an upcoming rate hike.
Next week’s figures will show the reasons why he is doing this, in addition to the fact that CPI inflation is now at 7%. Thursday’s figures are expected to show the economy grew strongly at the end of last year, with real GDP growing at an annualized rate of more than 6% in the fourth quarter. We should also see regular increases in personal income and spending in December and another increase in durable goods orders.
We could also see a rise in consumer confidence to levels well above average, but not as high as before the pandemic. The tight labor market does more to boost consumer morale than Omicron, and inflation does to reduce it.
The housing market, however, could run out of steam a bit. On Tuesday, the S&P could report that annual price growth fell below 18%, the lowest annual increase in six months.
In the euro zone, the indicators could be more mixed. The National Bank of Belgium is expected to report that business confidence remains at above-average levels. Historically, this has highlighted decent growth in the Eurozone generally. On the other hand, however, the German Ifo survey could show that while business confidence is stabilizing after falling since last summer, it is doing so at a low level. And the ECB is likely to signal that the annual growth in the M1 measure of money supply is slowing, especially when adjusted for inflation. In the past, this has been a leading indicator of slowing industrial production growth in the region. This does not yet signal a serious weakness, but it is a reason for caution.
In the UK, the main news should be the strength of the housing market. The Nationwide is likely to say prices are up around 11% year-over-year. Most economists, however, expect a cooling this year as lack of affordability and rising interest rates offset the continued lack of supply.