Federal Reserve Chairman Jerome Powell announces that interest rates will remain unchanged during a news conference at the William McChesney Martin Federal Reserve Building in Washington, DC, on June 12, 2024.
Kevin Dietsch | Getty Images
A host of major central banks will hold monetary policy meetings this week, with investors bracing for interest rate moves in either direction.
The much-anticipated two-day meeting of the Federal Reserve, which begins on Tuesday, will be in the spotlight.
The US central bank is widely expected to join others around the world in starting its own rate-cutting cycle. The only remaining question seems to be how much the Fed will cut rates.
Traders currently see a quarter-point cut as the most likely outcome, though as many as 41% predict a half-point move, according to CME’s FedWatch Tool.
Elsewhere, Brazil’s central bank is scheduled to hold its next policy meeting on Tuesday and Wednesday. The Bank of England, Norway’s Norges Bank and the South African Reserve Bank will all follow on Thursday.
A busy week of central bank meetings will be rounded off when the Bank of Japan delivers its latest rate decision at the conclusion of its two-day meeting on Friday.
“We are entering a tapering phase,” John Bilton, global head of multi-asset strategy at JP Morgan Asset Management, told CNBC’s “Squawk Box Europe” on Thursday.
Speaking ahead of the European Central Bank’s latest quarterly rate cut, Bilton said the Fed was also set to cut interest rates by 25 basis points this week, with the Bank of England “likely to come to the party” after the economy of the United Kingdom. stalled for the second month in a row in July.
“We have all the ingredients for the start of a fairly protracted cut cycle, but one that is probably not related to a recession — and that’s an unusual setup,” Bilton told CNBC’s “Squawk Box Europe.”
“That means we have a lot of volatility in my mind in terms of price discovery around those who actually believe that the Fed [is] Late, ECB [is] late, this is a recession and those, like me, who believe that we don’t have imbalances in the economy and this will actually fuel it further.
The decision of the Fed
Policymakers at the Fed have laid the groundwork for interest rate cuts in recent weeks. Currently, the Fed’s target rate is at 5.25% to 5.5%.
Some economists have argued that the Fed should deliver a 50 basis point rate cut in September, accusing the central bank of previously going “too far, too fast” with monetary policy tightening.
Others have described such a move as one that would be “too risky” for markets, prompting the central bank to deliver a 25 basis point rate cut instead.
“We are more likely 25, but [would] I like to see 50,” David Volpe, vice chief investment officer at Emerald Asset Management, told CNBC’s “Squawk Box Europe” on Friday.
“And the reason you do 50 next week would be more or less a safety mechanism. You have seven weeks between next week and … the November meet, and a lot can happen negatively,” Volpe said.
“So it would be more of a method of trying to deal with things. The Fed has been nipping at its heels a little bit, so we think it would be nice if they got ahead of it, did 50 now . . , and then they made a decision in terms of November and December, maybe they do 25 at that point,” he added.
Brazil and Great Britain
For Brazil’s central bank, which has cut interest rates several times since July last year, stronger-than-expected economic data for the second quarter is seen as likely to lead to an interest rate hike in September.
“We expect Banco Central to raise the Selic rate by 25 bps next week (to 10.75%) and bring it to 11.50% by the end of 2024,” Wilson Ferrarezi, an economist at TS Lombard, said in a note research paper published on September 11. .
“Further rate hikes in 2025 cannot be ruled out and will depend on the strength of domestic activity in the fourth quarter/24,” he added.
Traffic outside the headquarters of the Central Bank of Brazil in Brasilia, Brazil, Monday, June 17, 2024.
Bloomberg | Bloomberg | Getty Images
In the UK, an interest rate cut by the Bank of England (BOE) on Thursday is thought to be unlikely. A Reuters poll released on Friday found that all 65 economists surveyed expected the BOE to keep rates steady at 5%.
The central bank delivered its first interest rate cut in more than four years in early August.
“We have quarterly cuts from here. We don’t think they will move next week, on a 7-2 vote,” Ruben Segura Cayuela, head of European economics at Bank of America, told CNBC’s “Squawk Box Europe” -‘s. on friday.
He added that the next BOE rate cut is likely to happen in November.
South Africa, Norway and Japan
South Africa’s Reserve Bank is expected to cut interest rates on Thursday, according to economists polled by Reuters. The move would mark the first time it has done so since the central bank’s response to the coronavirus pandemic four years ago.
Norges Bank is set to hold its next meeting on Thursday. Norway’s central bank kept its interest rate unchanged at a 16-year high of 4.5% in mid-August and said at the time that the policy rate “is likely to remain at that level for some time to come “.
Meanwhile, the Bank of Japan is not expected to raise interest rates by the end of the week, although most economists polled by Reuters expect a hike by the end of the year.