Did the US economy grow in the third quarter?

Will the US record its first quarterly GDP increase of 2022?

The US economy is expected to have grown in the third quarter of 2022 – largely helped by a smaller trade deficit – despite forecasts that consumer spending has weakened.

The Commerce Department is expected to report on Thursday that US gross domestic product grew at an annualized rate of 2% from July to September, according to economists polled by Reuters. That’s down from an unexpected 0.6 percent decline in the second quarter and a 1.6 percent decline in the first three months of this year.

Analysts at JPMorgan expect the GDP growth to be attributed to “the significant reduction in the trade deficit during the quarter”. The US trade deficit shrank for the fifth straight month in August as consumers spent more on services than on goods and retailers cut overseas orders to manage excess inventories.

While the trade deficit is expected to boost GDP growth in the third quarter, some of the underlying details of the report are expected to be negative. Troy Ludtka, senior US economist at Natixis Americas, said consumer spending and investment are likely to weaken.

Despite projections that the economy grew in the third quarter, the US could still be heading for a recession next year as the Federal Reserve continues to tighten monetary policy aggressively to contain inflation.

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In many countries, two consecutive quarters of GDP contraction are classified as a “technical” recession. But the National Bureau of Economic Research, the government body that determines whether the US has entered a recession, declined to declare it because the job market remains strong.

“We are now basically teetering on the precipice of what could be a major economic contraction in [the Fed’s] hands,” Ludtka said. “They are trying to make up for a mistake they made in 2020 and 2021 with an even bigger mistake.” Alexandra White

Will the ECB raise rates by three-quarters of a point again?

The European Central Bank is expected to announce its second consecutive 0.75 percentage point increase in interest rates on Thursday, reaffirming its determination to tackle record levels of inflation in the euro zone.

Spyros Andreopoulos, senior European economist at BNP Paribas, summed up expectations saying the ECB was “still trying to catch up” in trying to contain inflation and it was still “too early for a dovish pivot in ECB communication”.

The likely increase in the ECB’s deposit rate to 1.5% – its highest level since January 2009 – is just one of several crucial decisions awaiting its president Christine Lagarde and the other 24 members of her governing board.

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Faced with eurozone inflation, which hit an all-time high of 9.9% in September, the central bank is looking at other levers it could use to dampen price growth in the 19 countries that share Europe’s single currency.

The board is expected to discuss ways to start shrinking the ECB’s nearly €9 trillion balance sheet, which has increased over the past decade. One is to change the rules to prevent banks from making nearly €25 billion in risk-free profits from the €2.1 trillion of ultra-cheap loans the ECB provided during the pandemic, known as targeted long-term refinancing operations.

Another is to signal plans to reduce the amount of maturing bonds it replaces in its €3.26 trillion asset purchase program from early next year. Such a process, known as quantitative tightening, has already begun at the US Federal Reserve and the Bank of England. But given the scars left by the eurozone debt crisis a decade ago, the ECB is likely to tread carefully. Martin Arnold

Will the BoJ cave in at its next monetary policy meeting?

The yen passed 150 yen against the dollar for the first time since 1990 last week, dropping to 151 yen on Friday, while official data showed Japan’s inflation rate rose to 3% in September, the highest in eight years.

The Japanese currency rose later in Friday’s session, touching 146.23 yen. Traders and analysts said the yen’s sudden rise brings the signs of official buying from policymakers.

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All in all, the developments once again raise the question of whether the Bank of Japan will do anything when its board meets for two days until October 28.

According to Masamichi Adachi, chief economist at UBS in Tokyo, the answer is “nothing”. BoJ Governor Haruhiko Kuroda is expected to remain steadfast with his ultra-loose monetary policy and remain committed to keeping the yield on Japanese 10-year government bonds below 25 basis points — even if that requires further buying. of emergency bonds.

“His message has been persistently decisive: Japan’s consumer price index inflation will decline to below 2% next year, so policy tightening is not necessary and inappropriate at this stage,” Adachi said. “We agree with this inflation outlook.”

There are few options to keep the yen from falling further as the distance between the BoJ’s dovish policy and the tightening shown by most other major central banks widens.

But Japanese officials have indicated they are ready to intervene if there is too much volatility and they still have enough firepower, even after a $20 billion intervention in September to prop up the yen. Kana Inagaki

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