Monetary policy is to the fore next week as a plethora of heavyweight central banks meet to combat super-hot inflation figures while battling slowing growth. How much do policymakers signal that they will push ahead with more tightening even the activity picture dims?
The Fed and Bank of England are fully expected to raise rates, with the former definitely going for a bigger half point rise. Front-loading is the Fed’s policy after it was caught asleep at the wheel continually talking about “transitory” price pressures. Inflation is now broad based and running at 40- year highs, while the unemployment rate is below 4%. We get an updated March figure on Friday with the usual monthly NFP report expected to remain healthy.
At least two more 50bp hikes are priced in for the next two FOMC meetings before a switch to smaller quarter point moves, as quantitative tightening gets up to speed. This should be confirmed by Chair Powell which should underpin support for the dollar’s recent rally.
The Old Lady is set to opt for a 25bp rate hike, having hiked three times already. The bank has said it is comfortable with a more ‘phased’ approach to tightening. The risk is for sizeable forecast revisions and guidance that the 150bp of hikes by year-end priced by markets is way out of line.
The hardest central bank meeting to call is Tuesday’s RBA. Rate hikes of 15bps through to 40bps are forecast, with the base rate currently at record lows of 0.10%. Policy objectives have broadly been met and a series of moves are forecast this year. But a terminal rate of 3.6% could be a stretch due to household debt levels and the upcoming hit of high inflation on real incomes.
Here are the key events on the calendar across markets this week:
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