a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285;;[{"layout":"linklist","uid":2695,"publicationDate":"28 Mar 15:09","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186333.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoD7ZpwRFBhydWwCzE7TVIvw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the monetary-policy decisions in Romania and Poland, the release of March PMI data for CEE and March inflation data for Turkey. Additionally, S&P will review Serbia\u2019s credit rating, while Moody\u2019s will review its credit ratings of Croatia and North Macedonia. We expect an outlook upgrade in Serbia\u2019s case but no changes for Croatia (due to political turmoil) and North Macedonia. Before these, Turkey will hold local elections on Sunday. <\/p>","hash":"a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M G:i","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":2686,"publicationDate":"27 Mar 9:32","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186324.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoz_LiAZVvt8S5VwjasoHQnQ==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - NBH cuts by 75bp and sounds hawkish","product":"EEMEA Macro Note","synopsis":"<p><ul class=\"ucrBullets\"><li>Yesterday, the NBH cut its monetary-policy rate by 75bp, to 8.25%. The move was in line with consensus but exceeded what markets had priced in and what we expected.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The NBH implied the need to prevent HUF depreciation in order to cap the FX pass-through to inflation.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The NBH continues to resist calls by the government to undertake rate cuts faster.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect the policy rate to be lowered to 6.5-7% by mid-year, in increments of 50bp, with the year-end rate at 6.5%. Risks to our call are more balanced than in previous months.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Yesterday, the NBH cut the policy rate by 75bp, to 8.25%, in line with consensus but 25bp more than what forward curves implied and what we expected prior to the decision. During the accompanying press conference, the NBH stressed the favorable fundamentals of Hungary\u2019s economy, as core inflation is set to fall below headline inflation in upcoming data releases.<\/p><\/p><p class=\"ucrIndent\"><p>The overall tone of the NBH was hawkish and can be interpreted, in our view, as verbal FX intervention. The NBH announced the usual end-of-the-quarter FX swap tenders, but this was not the most interesting development. This was rather the message that the FX passthrough to CPI inflation had intensified and that this change is a structural one, not a one-off feature. This clearly signals that the NBH has made a verbal commitment to prevent too much HUF weakness, at least in comparison to what the government desires.<\/p><\/p><p class=\"ucrIndent\"><p>Furthermore, NBH Deputy Governor Barnab\u00e1s Vir\u00e1g pushed back against a terminal rate that is too low in 2024, as expected by some analysts. He also pointed to the government\u2019s increasing stock of debt denominated in FX, highlighting that financial stability (i.e.. stable FX) helps government finances too. EUR-HUF appreciated very little after the press conference and gave up all the gains it made before markets closed for the day, which might be a sign of rather-bearish market sentiment towards Hungary.<\/p><\/p><p class=\"ucrIndent\"><p>The NBH formally announced the newest phase of monetary-policy easing, and this, according to our interpretation, means that the next rate cuts might come in increments of 50bp until June (or perhaps July). The NBH would deviate from this easing pace if international developments play out more favorably than suggested by the current outlook.<\/p><\/p><p class=\"ucrIndent\"><p>Addressing recent exchanges with the Ministry of National Economy, which supports faster monetary easing, the NBH stated, in yesterday\u2019s press release, that fiscal policy will need to incorporate its deficit targets in order for financial stability to be achieved. The government plans a budget deficit equivalent to 4.5% of GDP for 2024, although this has yet to be implemented in the budget as the official law assumes an unrealistic public shortfall worth just 2.9% of GDP. In our view, even the 4.5% of GDP target is optimistic. We think the actual deficit figure will eventually turn out to be equivalent to around 5.7% of GDP this year. Despite the expected fiscal overshoot, we do not think the NBH will be hindered from cutting to 6.5-7.0% by mid-year. However, we expect the central bank will have to halt rate cuts in the remainder of the year if it wants to maintain a stable exchange rate. The subsequent phase of monetary-policy easing should come after 1Q25, when a new NBH governor will take charge, possibly ushering in a dovish shift in policy.<\/p><\/p><p class=\"ucrIndent\"><p>Despite today\u2019s bolder-than-expected move, we have left our key-rate forecast unchanged at 6.5% for the end of the year. The primary reason is the mid-year goal of the NBH, which has been left unchanged at 6-7% (more towards the upper range) and is in line with our forecast. However, if service repricing in March and April (fees will rise at banks, telecom and insurance companies linked to last year\u2019s inflation) creates pressure on headline inflation that is stronger than anticipated, the NBH might be forced to slow its rate cuts earlier than June. On the contrary, if low commodity prices remain a feature of the world economy in the next months, inflationary pressure might be more muted than currently expected by the NBH and by us. Thus, we see inflationary risks as more balanced than they were a quarter ago. Thus, we also acknowledge the downside risks to our rate call.<\/p><\/p>"},{"layout":"linklist","uid":2684,"publicationDate":"26 Mar 15:16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186322.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRogQctIGg1LN12ZNTCUbMnkg==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Quarterly - Adjustment postponed in auspicious environment (2Q24)","product":"CEE Quarterly","synopsis":"<p><ul class=\"ucrBullets\"><li>We expect the EU-CEE economies to grow by around 2.6% in 2024 and 3.0% 2025, with the Western Balkans growing marginally faster. We expect GDP to grow by 3.2% in 2024 and 4.0% in 2025 in Turkey and by 2.8% in 2024 and 1.3% in 2025 in Russia.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Private consumption is likely to lead the growth rebound, helped by faster real wage growth, rising borrowing and government transfers. Public investment will be the second-largest growth driver, while net exports will drag on GDP dynamics this year.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We see budget deficits of less than 3% of GDP in 2024-25 in Bosnia-Herzegovina, Bulgaria, Croatia, Czechia and Serbia, with deficits of more than 5% in Hungary, Slovakia, Poland and Romania (all at risk of excessive deficit procedures), as well as Turkey.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect pro-EU parties to win more than two thirds of EU-CEE seats in the European Parliament, thereafter claiming more important positions in European institutions and NATO.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We see a trade-off between lower budget deficits and higher inflation in Poland, Romania and Turkey, where we expect inflation targets to be missed in 2024-25. In Hungary, this trade-off could be postponed beyond 2025.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect rate cuts this year in Czechia, Hungary, Romania, Serbia and Russia, although the pace of easing could slow in 2H24 and 2025 if currencies come under pressure. We expect the NBP and the CBRT to remain on hold this year, catching up in 2025.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Stable capital flows will cover C\/A deficits in all CEE countries except Bosnia-Herzegovina, Romania and Turkey, where additional funding will come from international financial institutions, sovereign external borrowing and private borrowing from abroad, respectively.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Enlargement momentum is accelerating, with the Western Balkans likely to benefit if reforms are implemented. The accession process could also bode well for rating upgrades.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In our view, the main risks are 1. a test to NATO\u2019s resilience following a lopsided peace in Ukraine, 2. more trade protectionism and lower risk appetite for EM assets if Donald Trump is elected US president, 3. low reform momentum after elections amid voter disengagement, 4. Bulgaria\u2019s probable early elections postponing euro adoption to 2026 and 5. limited EU transfers to Hungary and Slovakia due to standoff with EU institutions.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2683,"publicationDate":"26 Mar 14:54","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186321.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVeHqwEVRGV0E=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Global monetary policy approaches turning point","product":"The Unicredit Economics Chartbook","synopsis":"<p><ul class=\"ucrBullets\"><li><strong>Global: <\/strong> Global GDP will likely grow by 2.9% this year and by 3.1% next year. This is subdued compared to historical averages, reflecting the lagged effects of tight monetary policy, reduced household savings buffers, softening labor markets, and less supportive fiscal policy. Disinflation remains on track, despite core inflation being stronger than generally expected at the start of the year. Services will likely contribute more to disinflation ahead as labor markets are softening, short-term inflation expectations of firms and households have eased meaningfully, and firms report finding it harder to pass on rising input costs to consumers. Most central banks are getting closer to cutting interest rates, while the BoJ bucked the global trend by exiting negative rates.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>US: <\/strong> We continue to see GDP growth slowing to 1.8% this year and to 1.0% in 2025, down from 2.5% last year, as the strength of the consumer is likely to wane. We expect CPI inflation to fall to slightly above 2% by the end of this year, with core inflation following one quarter later. Further progress on disinflation is likely to come from housing and non-housing core services. The Fed will likely cut interest rates by 125bp this year, starting in June, and by 100bp next year. We expect an announcement on slowing the pace of Quantitative Tightening (QT) in May for a June start.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>Eurozone: <\/strong> Our growth forecasts of 0.5% for this year and 1.2% for 2025 remain on track. We see a slow improvement in the quarterly GDP path as real-wage growth turning positive should support private consumption, while monetary policy will continue to restrain activity. The resilience of the labor market contains downside risks to activity and buys time for the ECB. Headline inflation will likely ease to 2% in 2H24 and fall below the ECB\u2019s goal in 2025. June remains the most likely timing for the first rate cut, but the path thereafter is highly uncertain. We still expect three 25bp rate cuts this year, one per quarter, followed by similar steps next year until a more-neutral level is reached, probably in the 2% area.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>CEE: <\/strong> We forecast EU-CEE economies will grow by 2.6% in 2024, helped by private consumption and public investment amid EU transfers, and by 3% in 2025, when foreign demand and capex are likely to rebound. We expect GDP to grow by 3.2% in 2024 and 4.0% in 2025 in Turkey, and by 2.8% in 2024 and 1.3% in 2025 in Russia as the fiscal impulse fades and real monetary conditions remain tight. Central banks in Czechia, Hungary and Russia will likely cut rates this year, while those in Poland and Turkey could start easing in 2025.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>UK: <\/strong> GDP will likely broadly stagnate this year (-0.3%) followed by modest growth in 2025 (0.8%). The labor market is clearly deteriorating, and household savings buffers have been exhausted. The Spring Budget tax cuts are unlikely to change this. Inflation will fall below 2% in April, with core inflation easing to around 2.5% in 2H24. We expect the BoE to cut the bank rate by 75bp this year, starting in August, and by 175bp next year.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>China: <\/strong> We confirm our GDP growth forecast of 4.5% for 2024 and 4.3% in 2025, down from 5.2% in 2023. Although the National People\u2019s Congress set a growth target of \u201caround 5%\u201d for 2024, in line with last year, we believe that low consumer confidence, high youth unemployment, timid policy support across the board, a bloated real estate sector and an unfavorable geopolitical context will weigh on China\u2019s economic performance. The PBoC will likely continue to recalibrate different lending facilities at the margin.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2670,"publicationDate":"24 Mar 13:48","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186304.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVrgrsvZQSo7Y=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> While the European economy remains flat on its back for the fourth year running, maybe \u2013 just maybe \u2013 this past week provided some hope of a recovery, if ever to modest.<\/li><\/ul><ul class=\"ucrBullets\"><li> I have two different take-aways from the world's central banks\u2019 decisions and communication this past week: First, some general monetary policy lessons from the Swiss rate cut, the Turkish rate hike and the Japanese end of yield curve control.<\/li><\/ul><ul class=\"ucrBullets\"><li> Second, the message from the three big central banks was clear: Rate cuts are now just a few months away, but the neutral rate may be moving higher.<\/li><\/ul>"},{"layout":"linklist","uid":2669,"publicationDate":"22 Mar 18:06","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186303.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoh2b2DQeKufE1VLcRzQ5UCQ==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week will be the central-bank meeting in Hungary and the release of the March CPI for Poland. Moody\u2019s will review its sovereign rating for Romania, and we expect no changes. Before that, on Saturday, there will be the first round of presidential elections in Slovakia. <\/p>"},{"layout":"linklist","uid":2664,"publicationDate":"21 Mar 13:34","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186298.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHqVQtN1BG7KBoLEx_Ownjo=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: Improvement with a dovish flavor","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone composite PMI for March rose to 49.9 from 49.2, coming in broadly in line with expectations of a moderate increase (UniCredit and consensus: 49.7). This is the highest level since June last year. The improvement reflects a further moderate acceleration in services activity and ongoing contraction in manufacturing. Taken at face value, the outcome signals a near stabilization in the pace of economic growth, but the composite PMI has underestimated GDP growth in recent quarters. Therefore, it is probably worth focusing more on the direction than the level of the index. Overall, today\u2019s data seem consistent with our forecast that GDP barely expanded in 1Q24 (+0.1% qoq), following several quarters of stagnation. At country level, there were some divergent outcomes across the two largest economies, as weakness in economic activity was widespread in France while, in Germany, it remained concentrated in manufacturing as services activity came close to a near stabilization. The note accompanying the data release for the eurozone indicates that \u201cthe rest of the region\u201d performed, once again, better than France and Germany, recording faster growth than in February, especially in services. <\/li><\/ul><ul class=\"ucrBullets\"><li> In manufacturing, both output and new orders remained under pressure, with the respective indexes being little changed compared to February, stuck in the 46-47 area. Suppliers\u2019 delivery times shortened for the second consecutive time, as the impact from the Red Sea disruptions probably faded while demand conditions remained too subdued to put pressure on supply chains. In fact, demand weakness induced firms to cut stocks of purchases at a faster pace, with the respective index recording the second lowest reading since November 2012. Services activity meanwhile accelerated in March, reflecting a further improvement in new and outstanding business. In particular, new business moved back to the 50 threshold for the first time since June last year. <\/li><\/ul><ul class=\"ucrBullets\"><li> The composite PMI for employment eased in March after two consecutive months of improvement, pointing to some loss of momentum in the labor market. New hiring continued to be driven by the services sector, where firms continued to increase their headcounts, albeit at a slower pace, amid expectations of higher future levels of activity. In contrast, in manufacturing, firms reduced their workforce at a faster pace. <\/li><\/ul><ul class=\"ucrBullets\"><li> Price indexes signal persistent divergence across sectors, with price pressures remaining elevated in services, well-above pre-pandemic levels. Nonetheless, on an encouraging note, services firms reported a slower pace of increase for both input and output prices, with the selling price index down to the lowest level in four months. In manufacturing, both input and output price indexes remained below the 50 threshold. While the input price index increased, the output price index declined for the third consecutive month to the lowest level since November last year.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Implications for monetary policy: <\/strong> Weak, although improving, growth indicators, slower momentum in the labor market and easing price pressure leave June as the most likely timing of the ECB\u2019s first rate cut. We continue to expect a cumulative 75bp of easing for this year and another 100bp for 2025,<\/li><\/ul><p class=\"ucrIndent\"><strong>In greater detail: <\/strong> <\/p><p class=\"ucrIndent\">The composite PMI rose to 49.9 from 49.2 The index for manufacturing declined to 45.7 from 46.5, while that for services increased to 51.1 from 50.2, its highest level since June last year.<\/p><p class=\"ucrIndent\"><strong>CHART 1: <\/strong> THE COMPOSITE PMI APPROACHES THE 50 THRESHOLD<\/p>"},{"layout":"linklist","uid":2647,"publicationDate":"18 Mar 16:11","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186279.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHqVQtN1BG7KQ1qBDrO7GcY=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Surprising resilience of eurozone employment: drivers and implications for monetary policy","product":"Economics Thinking","synopsis":"<p><ul class=\"ucrBullets\"><li>Four years after the beginning of the pandemic, the resilience of employment has been a bright spot of the eurozone economy. However, a tight labor market has also raised concerns about wage pressure and unit labor costs (ULC), leading the ECB to hike rates aggressively into clearly restrictive territory. We claim that such fears are overdone.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Employment rising more strongly than output over the period 4Q19-4Q23 was quite unusual by historical standards. However, such outperformance largely reflected developments in the public sector and construction but not in market services, and mainly originated from 4Q22, when economic expansion came to a halt while employment continued to grow at a healthy pace. We also found highly heterogeneous developments at the country level.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We argue that new hiring was likely supported by a combination of factors: the profit-rich environment of the post-pandemic recovery, pockets of labor hoarding, weak productivity per hour worked, an increase in sick leave, composition effects dampening hours worked per person and, possibly, changes in personal preference.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The future path of the labor market, productivity and wages will be key for monetary policy. Further compression of firms' profit margins would occur from high levels and should not pose a major risk as such. However, sectors where labor hoarding has been more intense would probably not be able to retain staff if another shock were to hit the economy, or simply if the expected recovery fails to materialize. In a negative scenario, the downside could be significant.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Productivity numbers look less weak than generally thought if one excludes the (likely temporary) dampening effects of the public and construction sectors. Unless hiring in these two sectors structurally drains workers and skills from the rest of the economy, we should expect a gradual normalization in wage growth and ULC going forward. Monetary policy would need to adjust accordingly.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2640,"publicationDate":"17 Mar 12:36","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186271.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHqVQtN1BG7KJyzelIgnuig=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> My super-brief assessment of the Obama presidency.<\/li><\/ul><ul class=\"ucrBullets\"><li> A summary of what Obama told the good people in N\u00e6stved on Friday night.<\/li><\/ul>"},{"layout":"linklist","uid":2639,"publicationDate":"15 Mar 17:04","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186270.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoinB0LGJBsmWshQj0E8YEAw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the central-bank decisions in Czechia, Russia and Turkey. Moreover, Russia is currently holding presidential elections, with voting to end on Sunday. <\/p>"},{"layout":"linklist","uid":2634,"publicationDate":"14 Mar 16:40","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186265.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHqVQtN1BG7Kfz7AZQoSBIg=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Fed\u2019s nightmare: stop-and-go tightening","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Despite 525bp of rate hikes, a hard landing for the US economy seems to have been avoided in favor of moderate softening in activity, with inflation slowly moving towards the Fed's 2% target. In such a situation, the dilemma for the Fed is to identify the right time to cut rates. Wait too long and the economy might fall into a recession; act too soon and inflation might reaccelerate. Our Chart of the Week looks at past episodes of stop-and-go tightening, when the Fed cut rates too early and had to raise them quickly as inflationary pressure resurfaced. A few weeks ago, Atlanta Fed President\u00a0Raphael Bostic stated: \u201cWe do not want to go on these up-and-down or a back-and-forth pattern.\u201d<\/li><\/ul><ul class=\"ucrBullets\"><li> The chart shows the evolution of the fed funds rate and the Misery Index since the sixties. The latter, which is the sum of the unemployment and inflation rates, conveniently summarizes the two key variables for the Fed\u2019s monetary policy (even if whether one variable or the other is affecting the direction of the Index matters for monetary policy). Until the mid-nineties, the central bank did not pursue a specific inflation target (the 2% inflation target was not formalized until 2012), and its actions were meant to guarantee both price stability and full employment as stated in its dual mandate. But in some cases the two goals were not compatible, especially in the wake of supply shocks, leading to policy mistakes. <\/li><\/ul><ul class=\"ucrBullets\"><li> Three episodes stand out during the turbulent decades between the mid-sixties and mid-eighties, when fiscal policy was often too loose and there were several geopolitical tensions, especially in the Middle East. In June and July 1967, Fed Chairman William McChesney Martin Jr. cut rates for fear of a recession, only to hike them again in August of the same year as inflation started to resurface. He made a similar move in the summer of 1968. Similarly, in mid-1973, Fed Chairman Arthur Burns slashed rates after sharply tightening monetary policy in the previous months, but had to backtrack in February 1974, as inflation was rapidly rising towards 6%, fueled by the first oil shock. Lastly, in 1981, Fed Chairman Paul Volcker cut rates sharply twice for brief periods, when the Misery Index was close to 20%, only to backpedal almost immediately, driving the US economy into a deep downturn. <\/li><\/ul><ul class=\"ucrBullets\"><li> Besides their own peculiarities in terms of monetary regime, the key difference between now and these past episodes is that the Misery Index has been on a sustained downward trend for several months (albeit it remains above an equilibrium of 6% given by a 2% inflation target and a rough 4% natural unemployment rate). In these previous incidences, instead, it was always on an upward trend and there were no signs of an imminent stabilization. Based on this simple metric risks of a stop-and-go tightening are fairly limited. We reiterate our view that the first rate cut will probably come in June and that there will be a total of 125bp of cuts this year. However, the risk is that the Fed delays the first cut and opts for fewer cuts in 2024 if economic activity and employment were to prove more resilient than we expect. Fed officials have cited the stop-and-go episodes of the 1970s as a reason to proceed cautiously, even if the monetary policy regime (and central bank credibility) is very different this time and measures of inflation expectations remain impressively well anchored.<\/li><\/ul>"},{"layout":"linklist","uid":2623,"publicationDate":"12 Mar 15:57","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186254.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHqVQtN1BG7Kn0ug0Ms2ET8=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US CPI: Another reason for the Fed to wait","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The February CPI report brought another negative surprise for the Fed, at the margin, with core inflation coming in higher than expected. Core inflation stabilized at 0.4% mom, against expectations for an easing to 0.3% mom, while in yearly terms it edged down to 3.8% yoy from 3.9%. Looking at smoother measures of core inflation than the monthly rate, the three-month annualized rate and six-month annualized rate accelerated to 4.2% and 3.9%, respectively. Both measures have been on an upward path since December 2023. <\/li><\/ul><ul class=\"ucrBullets\"><li> Headline CPI inflation accelerated from 0.3% mom to 0.4%, in line with expectations. In annualized terms, CPI rose 5.4%, moving further away from the pace that would be consistent with meeting the 2% target for PCE inflation. In yearly terms, inflation rose to 3.2% yoy from 3.1%. The energy index rose 2.3% mom, while food prices were unchanged in February. <\/li><\/ul><ul class=\"ucrBullets\"><li> Looking at the breakdown of core inflation, the picture is not rosier. Core goods inflation turned positive at 0.1% mom, after 8 consecutive months in negative territory. The increase was driven by the prices for used vehicles and apparel that were up 0.5% mom and 0.6% mom, respectively. The shelter index increased 0.4% in February and was the largest factor in the monthly increase for core inflation. The index for rent rose 0.5% mom, while the index for owners' equivalent rent increased 0.4% mom (after spiking 0.6% mom in January, which now looks like an aberration). The only positive news comes from non-housing core services (or supercore) inflation, which after jumping to 0.9% mom in January dropped to 0.5% in February. Airline fares (which tend to be volatile) rose 3.6% mom percent in February, while the index for motor vehicle insurance (which tends to reflect the past rise in car values) increased strongly again. <\/li><\/ul><ul class=\"ucrBullets\"><li> The last mile in the disinflationary process is perhaps proving to be more challenging than previously envisaged. The Fed can hardly ignore that there was a pick-up in underlying pricing dynamics during the first two months of 2024, and this follows a period of extremely solid economic activity in the second half of last year. Even looking at smoother measures of core CPI inflation, the picture is one of inflation stabilizing at a too-high level. This could just be a temporary setback along the path towards the 2% target, or it might be the result of economic strength amid loosening financial conditions. Our current view is the former, as forward-looking indicators of the labor market (such as NFIB hiring intentions, Challenger job cut announcements, and the quits rate) all point to a clear softening, which should lead to a further easing of wage pressures and services inflation. Meanwhile, surveys of new rents continue to point to a material easing in CPI housing inflation over the next year. And it is important to note that core PCE inflation (the Fed\u2019s preferred measure of inflation) tends to run somewhat below core CPI inflation. The February PPI report on Thursday will provide additional information to forecast February core PCE inflation, which is due to be released on 29 March. We reiterate our view that the first rate cut will probably come in June for a total of 125bp of cuts this year, as the economy and inflation slows. But the risks are skewed towards a later start and fewer cuts in total in 2024. <\/li><\/ul><p class=\"ucrIndent\"><strong>More in general: <\/strong> <\/p><p class=\"ucrIndent\">Regardless of the measure used, core CPI inflation is stabilizing closer to 4% than to 2%. The picture for core PCE inflation in February will probably look slightly better, in part as housing has a smaller weight in the PCE basket than in the CPI basket. <\/p><p class=\"ucrIndent\">CHART 1. STUCK ABOVE 2%<\/p>"}]