| I'm Malcolm Scott, international economics enterprise editor in Sydney. Today we're looking at the Fed's upcoming decision and the BOJ's surprise rate hike. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here. The waiting game is set to continue for Federal Reserve watchers, with officials widely expected to use this week's meeting to signal a potential rate cut in September. Hours earlier in Tokyo, there was bolder action for central bank enthusiasts to digest. The Bank of Japan raised its benchmark to around 0.25% and unveiled plans to reduce bond buying — actions that underscored Governor Kazuo Ueda's determination to normalize policy after years in which the central bank pursued an ultra-easy policy that included the world's last negative interest rate until March. Only about 30% of BOJ watchers predicted a hike today. Coming hours before the Fed is set to meet, Ueda's hawkish tilt may spell a turning point for the beleaguered yen, as traders position for a narrowing of the US-Japan interest rate gap. Any comments by the Fed hinting at the possibility of a rate cut in September would support that narrative. And that's pretty much what economists are expecting. The Fed will keep its benchmark rate in a range of 5.25% to 5.5%, a peak reached a year ago, according to a Bloomberg survey. With that decision seen as a slam dunk, all eyes will be on the statement's wording and Chair Jerome Powell's press conference. In their statement, policymakers are likely to highlight the improved inflation outlook: Instead of saying there has been "modest" progress, as they did in June, the FOMC could say there has been "further progress." Powell is likely to be pressed on the outlook for the next meeting in September, as well as the pace of easing for the rest of this year and next. While he will probably welcome recent good news on inflation, he may also fall back on the Fed's standard language that its policy path will be "data dependent" and the central bank is plotting moves "meeting by meeting." While Powell may again be asked about the November presidential election, he's almost certain to repeat his standard line that politics plays no role in the Fed's rate decisions. As for the BOJ, Bloomberg Opinion Columnist Gearoid Reidy wondered whether Ueda's timing was spurred by political calculations. The BOJ's next meeting on Sept. 20 comes around the time as Japan's ruling party leadership vote, which will decide if Prime Minister Kishida stays or goes. There's a non-zero possibility that decision could be followed by a general election, if a new leader were to call a snap vote, which could then be in late October — again around the time of a BOJ meeting. "The BOJ tends to avoid changing policy around such times, making now a good time to make a move without worrying about the political implications," Reidy mused in a blog ahead of the decision announcement. - Just as the Fed seems ready to clear the way for Latin American central banks to keep cutting rates, growing political problems at home are set to disrupt — if not reverse — those easing campaigns.
- The two former Treasury chiefs who steered the US through the global financial crisis caution on the fiscal path, with Henry Paulson saying debt will "destroy" prosperity and Timothy Geithner warning on the dollar.
- Economic growth in Hong Kong and Taiwan beat expectations.
- Australia's core inflation unexpectedly decelerated last quarter, supporting the Reserve Bank's view that prices will gradually ease.
- Kamala Harris has wiped out Donald Trump's lead across seven battleground states. Read the Big Take.
After the year of "revenge" spending in 2023, it's clear as of mid-2024 that consumers are tightening their belts, as evidenced in recent corporate earnings comments, according to analysis by TD Securities. "While savings rates remain elevated in some countries" such as the UK and Canada, "there is increasing evidence that consumers are feeling stretched and starting to pull back, especially those who are price-sensitive and at the lower end of the income spectrum," James Rossiter, head of global macro strategy at TD, wrote in a note Tuesday. He noted McDonald's reported lower sales as customers got more value-conscious, Whirlpool suggested US demand for appliances has been weak and Coca-Cola and Pepsi saw sales falling in North America. Both global and European trends show airlines cut prices this summer as revenge travel slowed. It all reinforced TD's view that central banks will "ease gradually over the coming quarters." | 
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