Will the Fed signal a slowdown in the pace of rate hikes this fall?
Will the Fed shed some light on its plans for later this year?
The Federal Reserve will wrap up its two-day policy meeting in June on Wednesday, where it is widely expected to hike interest rates by half a percentage point. It will also release its summary of economic projections, which includes a so-called dot chart, showing members’ forecasts for interest rate policy.
At the Fed’s May meeting, Chairman Jay Powell said that if inflation and economic conditions remained broadly in line with the bank’s expectations, “we would have 50 basis point increases on the table in the two next meetings”, i.e. in June and July. But the chances of another oversized hike in September are unclear and will depend on how much effect the continued aggressive bull cycle will have on inflation.
NatWest’s chief U.S. economist, Kevin Cummins, expects the midpoint – the Fed official’s average view of the interest rate situation by the end of the year – to be increased from 1.875%, expressed in the March report, to 2.625%. But he doesn’t expect it to rise much more from there in 2023 or 2024.
Inflation data for May – which showed consumer prices continued to rise, at a rate of 1% from the previous month and a rate of 8.6% year-on-year another – will likely add pressure on the Fed to aggressively pursue higher interest rates. The New York futures market was betting Friday morning that the Fed’s key rate would be at 3.1% by the end of the year, against 2.8% at the start of the month. Kate Duguid
Will the Bank of England opt for a further rate hike?
A fifth consecutive Bank of England interest rate hike is virtually certain this week. But investors and economists are divided on its magnitude.
Market prices point to a further 0.25 percentage point increase to 1.25% as the most likely outcome, with an outside chance that the BoE will follow the Federal Reserve in opting for an extra-wide increase of half a point.
The dilemma for the BoE is how to rein in inflation, which hit a 40-year high in April, without stifling economic growth. For now, data showing strong wage growth, along with the government’s recent fiscal support for the economy, should mean inflation concerns dominate, according to British Bank of America economist Robert Wood.
Wood expects a quarter-point rate hike on Thursday, but with three members of the BoE’s nine-member rate-setting committee voting for a bigger hike and the central bank moving to guidance more hawkish for the rest of the year.
However, with growth expected to slow further, the “narrow path” the BoE can take to fight rising prices without triggering a downturn may soon disappear, according to Wood.
“We see growing risks that the BoE will have to choose between bringing inflation back to its target or avoiding a recession,” he said.
Previous BoE rate hikes haven’t offered much support for the pound, but that could change if the bank makes a more decisive turn this week, Bank of America said. Tommy Stubbington
Will the Bank of Japan say more about the weakness of the yen?
The big question for the Bank of Japan’s monetary policy meeting next week is not whether the central bank remains on hold. The overwhelming majority of economists are confident it will, intensifying the contrast with other central banks around the world which are now firmly in a tightening cycle.
This contrast is the main dynamic that has caused the yen to fall so sharply against the US dollar and other currencies in recent months, and has pushed the Japanese currency near a 24-year low.
As the yen’s eye-catching fall looms on the horizon of next week’s meeting, the focus will be on what BoJ Governor Haruhiko Kuroda says about the currency’s historic weakness during his press conference after the announcement of the political decision.
Speculation around Kuroda’s likely comments changed on Friday after the BoJ, the Ministry of Finance and the Financial Services Agency issued a rare joint statement aimed at “jawboning” some stability in the dollar-yen exchange rate by making referring to concerns about the sharpness of recent movements.
But in a separate interview, Masato Kanda, Deputy Finance Minister, said: “If asked if a move of several yen in a single day is in line with fundamentals, I think many would say that’s not the case.” The comment, Nomura analysts said, could put pressure on Kuroda to say whether he is among those who see the yen’s recent moves as a change of heart that a weak yen is overall good for the economy. Japanese economy. Leo Lewis