January 28, 2023

FED, recession and inflation – what you need to know

LQDFXperts Features | FED, recession and inflation - what you need to know

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The busiest — and what could be the most important — week of the summer is coming up, with FED, recession and inflation under the spotlight. 

Cautious investors look ahead to a week of Big Tech earnings and a crucial interest rate decision from the US Federal Reserve.

Experts widely expect the Fed to deliver another three-quarter point rate hike for the second consecutive month this week. Still, recession fears have been prominent in recent weeks as Wall Street considered decades-high inflation. 

The Biden administration is leaning on strong job growth and healthy consumer spending ahead of Thursday’s gross domestic product (GDP) release that will signal how close the U.S. is to a recession.

Biden has repeatedly downplayed recession fears by arguing analysts should take a broader look at the economy.

Still, the stock market declined to hit a bear market last month. Market sentiment is now swinging between fears of rate rises hastening an economic downturn and optimism about weaker demand cooling red-hot inflation. 

The European Central Bank raised its interest rate last week for the first time in 11 years to curb inflation.

Last week’s resignation of Italy’s prime minister Mario Draghi heightened stress in the nation’s debt markets.

FED, recession & Big Tech earnings

Tech titans Amazon, Microsoft and Google parent Alphabet are reporting their quarterly results this week. Such reports may set the tone for the weeks and months ahead in the tech industry, a sector that has already signalled it could suffer from an economic downturn.

Wall Street will be using Microsoft’s quarterly report Tuesday afternoon to gauge not just the company’s results but the prospects for the broader enterprise tech economy.

The US is expecting several key economic reports this week aside from the second quarter GDP numbers coming Thursday, including Tuesday’s consumer confidence survey and Friday’s Personal Consumption Expenditure index.

The week also sees several updates on the US housing market, over which concerns are growing concerning rising mortgage rates.

In Europe, sentiment data for the Eurozone are accompanied by GDP data for Q2.

Economic events to watch

The US takes centre stage with the Fed FOMC meeting on Wednesday and GDP data on Thursday.

GDP readings for Germany are out on Friday

France and Italy’s Q2 GDP figures will be scrutinised on Friday

Investors also await updated business and consumer sentiment data from the EU. For the UK, the focus will be on mortgage lending.

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