Will an ugly jobs report stop the Fed from raising interest rates sharply?

U.S. hiring is expected to slow in January, with some economists warning of job cuts in the economy as the impact of the coronavirus wave in Omicron becomes more widespread.

The U.S. economy is expected to add 175,000 jobs at the start of the year, compared with 199,000 in December, the Labor Department is expected to say on Friday. The unemployment rate is expected to hold steady at 3.9%, according to Bloomberg estimates. Average hourly earnings are expected to rise 5.2% from a year earlier, compared with 4.7% in December.

Economists, however, continued to revise their estimates, with some warning that employment could contract in January as a highly contagious variant of Omicron hits leisure and hospitality, healthcare and other service-related industries.

Economists at Jefferies noted a “high probability” of a negative impact, while economists at Pantheon Macroeconomics forecast 300,000 U.S. job cuts.

“The jobs report won’t change the Fed’s bullish view on the labor market,” said Lydia Bussoul, senior U.S. economist at Oxford Economics.

The Fed is focusing on curbing rampant inflation and the Fed chair Jay Powell “I think there’s quite a bit of room to raise interest rates without threatening the labor market,” it said this week.

“Fed officials think the labor market is very tight and they may see through the temporary weakness in job creation,” Bousur said. mamtabadka

Will the Bank of England start unwinding its bond-buying program?

The Bank of England is widely expected to raise interest rates for a second straight month at its meeting this week. That means investors are looking beyond just raising borrowing costs to 0.5% (which has been widely priced in by the market) to see if this will trigger a quantitative process by which the central bank begins to unwind its £875bn government debt holdings. Loose plan.

Back in August, when the Bank of England laid out its strategy to tighten monetary policy in the wake of the coronavirus pandemic, the Bank of England said it would begin shrinking its balance sheet when interest rates hit 0.5%. It does so in a way that it does not stop reinvesting its holdings of maturing bond proceeds “where appropriate, given the economic situation.”

With inflation rising sharply since last summer, that moment appears to come sooner than investors or the Bank of England itself expected.

George Buckley, an economist at Nomura, said that if rate-setters at the Bank of England felt it was appropriate to raise rates, they might judge that it would also be appropriate to start loosening quantitative easing.

“Given that Governor Bailey has previously expressed a desire to shrink his balance sheet, it seems reasonable to act sooner,” Buckley said. That means the so-called “quantitative tightening” process will begin in March, when the central bank’s £28bn holdings of gilt bonds will mature.

However, Ruth Gregory of Capital Economics said the Bank of England could still be left “in the cold”. Gregory said it may also play down previous guidance that it would “consider” aggressively selling bonds in its portfolio once rates hit 1%.

“It feels like a dovish development,” she said. Tommy Stabbington

Will the ECB signal a change in monetary policy at its January meeting?

Many economists do not expect the European Central Bank to change policy at its first policy meeting of 2022 on Thursday, even as the euro zone faces a surge in inflation.

Carsten Brzeski, head of global macro at ING, said the time for a possible rate hike by the European Central Bank “has not yet come”.

He noted that the Federal Reserve is close to raising interest rates for the first time during the pandemic, but the expansion of the U.S. economy is already much higher than it was at the time of the health emergency.

By contrast, the euro zone economy is expected to have just returned to pre-pandemic levels with fourth-quarter data on Monday.

Brzeski noted that this week’s ECB meeting is unlikely to bring any policy changes. “Instead, the central bank will have to deal with a new communication challenge on inflation: avoiding any apparent shift from patience to panic,” Brzeski added.

Nomura economist George Buckley also expects no major changes in policy or guidance, and believes the ECB will be able to slowly normalize policy rates starting in June 2023. But “our interest rates are looking at upside risks,” Barkley warned.

Eurozone inflation on the rise 5% in December, the highest level since the euro was born and more than double the ECB’s 2% target. The ECB expects the peak of inflation to pass in the fourth quarter.

Investec economist Ellie Henderson said the preliminary estimate for January’s unified consumer price index, released on Wednesday, “will provide the first clue” on whether the forecast “is working”. Valentina Romee