Investors are keeping a close eye on the Federal Reserve this week, with expectations high that the central bank will cut interest rates. Other major central banks, including those of Canada, the U.K., and Japan, are also scheduled to announce their latest policy decisions. Meanwhile, U.S. retail sales growth for August is expected to slow, and shipping giant FedEx is set to release its quarterly results, often seen as a bellwether for broader economic activity.
Fed Decision in Focus
The spotlight is on the Federal Reserve, with markets nearly certain that the central bank will implement a rate cut at the conclusion of its two-day meeting on Wednesday. Signs of a softening U.S. labor market have reinforced expectations that policymakers will approve the first reduction since the easing cycle was paused in December. Lower rates could, in theory, boost investment and hiring.
However, cutting rates also risks fueling inflationary pressures. Last week, the monthly U.S. consumer price index saw a modest rise due to higher housing and food costs, hinting at persistent inflation. Yet, a separate measure showing an increase in weekly initial jobless claims has kept the probability of a Fed cut high. According to CME’s FedWatch Tool, there is roughly a 95% chance of a 25 basis point reduction, with about a 5% chance of a deeper half-point cut. The Fed’s target range currently stands at 4.25% to 4.5%.
“Inflation remains above target and tariffs are likely to keep it elevated in the near term, but the balance of risks are tilted towards the need for more support for the economy,” analysts at ING said in a note.
Decisions from Canada, the U.K., and Japan
Other central banks are also in focus this week. The Bank of Canada is expected to cut rates by a quarter-point to help support an economy particularly exposed to U.S. tariffs. Canadian job growth slowed for the second consecutive month in August, while Q2 GDP showed contraction, although inflation remained broadly in line with expectations.
The Bank of England is anticipated to keep rates unchanged, having already lowered them in August. Officials will consider recent labor and inflation data before Thursday’s decision. Similarly, the Bank of Japan is expected to hold rates steady, although investors may be watching closely for guidance on the fourth quarter amid domestic political uncertainty.
U.S. Retail Sales
On Tuesday, August retail sales figures for the U.S. are set to be released. Economists forecast that sales growth slowed to 0.2%, down from 0.5% in July, which was boosted by strong vehicle demand and promotions from Amazon.com and Walmart. June figures were revised upward, providing some reassurance that the economy can withstand a softer labor market. Nevertheless, easing employment conditions, falling consumer confidence, and higher goods prices could pose headwinds in the final weeks of Q3.
FedEx Earnings
FedEx (NYSE:FDX) is among this week’s key earnings reports, widely seen as a gauge of U.S. consumer spending. As an economic bellwether with connections across global business, FedEx’s results often provide insight into broader trends.
Trump’s aggressive trade policies have impacted recent FedEx results, creating uncertainty that has led many companies to limit spending. In June, FedEx issued a cautious outlook, citing the tariffs. CEO Raj Subramaniam warned of a “volatile” global demand environment, and the company’s fiscal Q1 forecast of adjusted profit per share of $3.40 to $4 fell short of analyst expectations.
U.S.-China Talks in Madrid
U.S. and Chinese officials are meeting again after making little progress on the first day of a new round of discussions on Sunday. Anticipation remains subdued for a breakthrough on long-standing trade tensions between the world’s two largest economies.
Observers expect the talks to focus on extending the TikTok divestment deadline. ByteDance must sell the U.S. operations by September 17, or the app faces a shutdown in the U.S. Citing a source familiar with the matter, Reuters reported that President Donald Trump may extend the deadline.
Bessent told reporters both sides would “start again in the morning” after meeting for six hours on Sunday. China’s embassy in Madrid indicated a concluding press conference could occur Monday, suggesting the talks may wrap up soon. Bessent is scheduled to travel to London on Tuesday ahead of Trump’s state visit with King Charles.
Meanwhile, before negotiations began, China’s Ministry of Commerce launched an anti-discrimination probe into U.S. chip policies, alongside a separate investigation into potential dumping of U.S. analog chips.
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