What’s the next move for Fed?
On Wednesday, Fed is set to announce its interest rate decision and markets are pricing in a 75% chance of 50bps rate hike.
The November labor market report was strong, and the PPI reading for November was hotter than expected (though it was still below October’s print). The US CPI report, which is due out on Tuesday, is the last remaining piece of the puzzle.
Headline CPI is expected to fall to 7.3% YoY from 7.7% YoY. Core CPI is expected to fall to 6.1% YoY from 6.3% YoY. If the actual readings match the estimates, expect a 50bps increase. The Fed will also publish its “dot plots” showing inflation, growth and interest rate projections. Markets will be watching how much the Fed expects interest rates to rise before hitting the final rate.
BOE rate decision
This week’s Thursday Interest Rate Decision meeting is when the Bank of England convenes. Rates were raised by 75 basis points at the BoE’s most recent meeting, bringing them to 3%. The Committee predicted that rates would need to rise in order to bring inflation back to target, but it also predicted that the terminal rate would be lower than what the market had predicted.
It is anticipated that the headline CPI would decrease to 10.9% YoY and that the Core CPI will remain constant at 6.5% YoY. Before making its choice, the BoE will also review additional data points this week, such as the October GDP and the November Claimant Count. Will the BOE raise rates into weaker employment, slower growth, and higher inflation?
Will ECB raise rates by 50bps?
European Central Bank will announce its interest rate decision on Thursday. ECB lifted rates by 75bps last meeting bringing the borrowing cost rate to 2.00% The ECB stated that it will keep raising interest rates since inflation is too high and consistently exceeds forecasts. The CPI’s initial reading for November dropped from 10.6% YoY in October to 10% YoY. Market is expecting a decline to just 10.4% YoY.
Despite fears that the Eurozone is on the brink of recession, ECB is expected to raise interest rates by 50 basis points.