There’s an incoming gaggle of central bank meetings next week, all determined to tame rampant inflation. The FOMC, Bank of England, Bank of Japan and Swiss National Bank release interest rate decisions. Obviously, the Fed meeting is the highlight, as it is expected to continue with jumbo-sized rate hikes, with the small chance of a “hike of the century”, as one US investment bank called it, ie 100-basis points.
After this week’s blockbuster US inflation data for August and a consistent chorus of hawkish rhetoric, the market has fully priced in another 75-basis point rise. Can the world’s most important central bank go with an even bigger rate rise? It seems possible but unlikely, mostly because that front-loading would be extreme and hasn’t been signalled by any Fed officials. New forecasts from policymakers may determine what happens after this meeting. If the FOMC are optimistic about growth going forward, this is likely to underpin support for the dollar and see a further sell-off in stocks.
The re-arranged Bank of England meeting takes place ahead of a mini-emergency Government budget in the UK next Friday and sinking sterling. GBP traded below 1.14 against the dollar for the first time since 1985 today. The hawks of the MPC at the Bank of England will not be happy with this weakness.
Markets are currently sat on the fence between the chances of a 50 basis points and 75 basis points rate rise at Thursday’s MPC meeting. The government’s recently announced energy support package is set to raise inflation in the medium-term given it reduces recession risks. That could need more BoE rate hikes meaning sterling finds some support in this scenario, though the growth outlook will still remain highly uncertain.
Here are the key risk events on the calendar:
