Source: Wind

This week, the market will welcome the latest interest rate decisions from many central banks, including the Federal Reserve, the Bank of England, the Swiss Central Bank, and the Bank of Japan. Currently, the market fully anticipates monetary policies in various countries, but the results of the incident are often beyond expectations, because, for example, although the Federal Reserve continues to push for interest rate hikes, the decline in consumption data and the strike of workers at the three major automobile manufacturers have created many obstacles to interest rate hikes. The variables are among these factors.

US: The market is already focusing on how long the high interest rate will last

This week, the market focused on the Fed's policy path. At 02:00 a.m. on Thursday morning, the Federal Reserve will announce its September interest rate decision; at 02:30 a.m., Federal Reserve Chairman Powell will hold a press conference.

The market expects that the Fed's suspension of interest rate hikes this time is almost a “foregone conclusion,” with a probability as high as 98%. Due to the previously announced slight recovery in US CPI in August, the year-on-year increase was 3.7%, 0.5 percentage points faster than in July; retail sales and PPI data were also higher than expected, all driven by high oil prices.

On Friday, survey results released by the University of Michigan in the US showed that US consumers' expectations for long-term and short-term inflation fell sharply in September. Among them, short-term inflation expectations hit a new low of more than two years, and five-year inflation expectations fell to 2.7%, a new low since the end of 2020. At the same time, the initial value of the consumer confidence index fell short of expectations.

As the interest rate hike cycle has peaked, has the financial market's focus on the Fed's subsequent policy also switched from “how high” interest rates are to “how long” interest rates will actually last?

Will Japan withdraw from negative interest rates

At 11:00 this Friday, the Bank of Japan will announce its interest rate decision; at 14:30 on the same day, Bank of Japan Governor Kazuo Ueda will hold a press conference. Whether to raise interest rates and what kind of policy trends are all the focus of investors' attention.

The market expects that the Bank of Japan will not change its interest rate policy. Two members of the Bank of Japan also publicly stated recently that it is necessary to patiently maintain an ultra-loose monetary policy for the time being. Currently, it is not yet certain that inflation can sustainably achieve the 2% target.

Bank of Japan Governor Kazuo Ueda said in an interview that the Bank of Japan may have enough information to determine whether wages will continue to rise before the end of the year. This is a key factor in deciding whether to end the ultra-loose policy.

In fact, it may not be that easy to exit negative interest rates. Japan's chief economist, Kyohei Morita, pointed out, “The Bank of Japan will also face the challenges of slowing GDP growth and slowing inflation. It can be said that it is necessary to wait until it is determined that wages will continue to rise and the economy will continue to recover in 2024, and that the Bank of Japan will not withdraw from YCC until the fourth quarter of 2024, and end the negative interest rate policy after 2025.”

The Bank of England may follow the interest rate hike by 25 basis points

At 19:00 this Thursday evening, the Bank of England will hold an interest rate meeting. Currently, the market expects a 70% chance of raising interest rates.

Currently, UK economic data is underperforming, economic growth is slowing, and employment demand is cooling down. Leading indicators suggest that this phenomenon is likely to continue. However, inflationary pressure is still very high, and wage growth remains at a record high, creating a dilemma for the Bank of England.

Specifically, due to the impact of factors such as strike action and humid weather, UK GDP fell 0.5% month-on-month in July, the biggest decline since December 2022, falling short of market expectations. From May to July, the UK economy grew by 0.2%. Meanwhile, since April 2022, the UK inflation situation has continued to worsen. In October of last year, the UK CPI rose 11.1% year on year, a record high in 40 years. Since then, it has begun to decline slightly. According to the latest data, the UK CPI rose 6.8% year on year in July and fell 0.4% month on month.

To control inflation, the Bank of England has raised interest rates 14 times in a row since December 2021, and the benchmark interest rate has risen to 5.25%. Some economists expect the Bank of England to raise interest rates again as core inflation and service sector inflation remain high.

Bank of England official Mann also recently hinted that he might support further interest rate hikes to combat inflation.

other

On Thursday, the Swiss central bank is also expected to raise interest rates again to curb inflation. According to some analysts, this may be the last step taken by the Swiss central bank in its current tightening cycle. Norway's central bank may do the same, but it may soon change its policy path to maintain monetary policy at the peak level of this round of austerity reached at that time.

Also on Thursday, although the Swedish economy, particularly the real estate sector, which is the backbone of the Swedish economy, is in trouble, central bank officials are too worried about the state of inflation, so they may not easily risk suspending interest rate hikes.

Outside of developed markets, Turkey's central bank is likely to raise interest rates by about 500 basis points this Thursday, raising the weekly repurchase rate to 30%. This will be the latest signal about Turkey's return to “orthodox economics,” indicating that the Turkish government intends to end years of ultra-loose monetary policy. On the same day, the Bank of South Africa is likely to keep the benchmark repurchase rate near the high level of 8.25% for two consecutive times.

Editor/jayden