Markets with Megan

Are central banks around the globe shifting gears? This week on Markets with Megan, Megan Horneman explores the pivotal monetary policy decisions that are shaping economies worldwide. From the Bank of Japan's unusual rate hike to defend a faltering yen to the Bank of England's unexpected rate cut amid a divided vote, the landscape is rapidly changing. The Central Bank of Brazil's cautious stance on inflation holds rates steady, and we dive into the Federal Reserve's hints at a potential September rate cut if economic conditions align.

Today, we unravel the implications of these central bank moves and what they mean for the future. With a critical U.S. unemployment report on the horizon, the Federal Reserve's dual mandate of price stability and maximum employment takes center stage. What does the recent rise in jobless claims signal for the labor market? Don't miss Megan's analysis and insights into these crucial developments. Remember to like, subscribe, and share!

It's been the week of the central banks. It is Thursday, August 1st, and you are listening to Markets with Megan. We wanted to talk a little bit about some of the action we've been seeing from central banks this week. 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. All of these banks met and made assessments on monetary policy. So let's just break down some of the information that we got.

The Bank of Japan actually raised interest rates. They did this because they're trying to defend the currency, which has been very, very weak here in recent months. 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. 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%. It was a very mixed though vote. It was a split, basically five to four on cutting interest rates. They wanted to make it very clear that this is not going to be a consistent rate cutting cycle. It's just too early. They need more information from the data. What they said was it was just a reduction of their restrictive policy. They said that they will continue to look at monetary policy at each meeting. So again, they gave the cut, but more of like a hoggish cut is what we like to say. Again, they gave the cut, but more of like a hoggish cut is what we like to say.

The Central Bank of Brazil they left rates unchanged. They did note that there's greater caution, though. They increased their upside and downside risks to three from two at the last meeting, and they're watching that deterioration in inflation expectations. So again, the Central Bank of Brazil kept rates unchanged. Now let's talk about the Fed, which is obviously more impactful for us, and the Federal Reserve met yesterday. 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. They still kept that greater confidence is needed on inflation, though.

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. 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. The employment rate now sits at 4.1 percent and what we saw this morning was a pretty big uptick here in continuing claims. Continuing claims jumped to the highest level since November of 2021. Now there's some seasonality effects in July when it comes to the jobless claim. So we'll get again.

We get that report every Thursday, but that's something I think the Fed's probably paying attention to. Tomorrow is the more important report. 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. So the rate cut for September is on the table. If the employment market continues to weaken and inflation continues to move in the right direction, it is possible.

But we are not in the camp that this is going to be the start of an aggressive rate cut cycle. The data just does not support that at this time. 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. That's all today. 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. Thank you.