Central banks to stress higher for longer rates narrative as traders bet on cuts
A range of prominent central bankers will be speaking this week as markets look for clues on the future path of interest rates.
“Central banks will also be top of mind for investors with scheduled appearances from Fed Chair Powell (Friday), ECB President Lagarde (Monday) and BoE Governor Bailey (Wednesday), among others,” analysts at Deutsche Bank said.
Over recent weeks, central bankers have been pushing back against the market expectation that the battle against inflation is nearing its conclusion.
Markets think rate cuts will begin in the first half of next year, whereas policymakers have been stressing the need for monetary policy to remain restrictive for an extended period of time.
In fact, both Powell and Bailey have suggested that further rate hikes are possible, something that the market has almost entirely ruled out. Minutes from the most recent ECB meeting also suggest that further tightening in the eurozone is not out of the question either.
Further detail on the fight against inflation will be provided when inflation data for November is published in the eurozone on Thursday.
Markets expect the headline rate of inflation in the eurozone to drop to 2.7 per cent while core inflation will ease to 4.0 per cent.
In the US on Thursday, Personal Consumption Expenditure (PCE) inflation data – the Fed’s preferred measure – is due to be released.
PCE inflation is a measure of the prices that people living in the US pay for goods and services. It captures a broader range of goods than the consumer price index and also reflects how customer behaviour changes in response to rising prices.
Analysts at Deutsche Bank think core PCE is likely to stay at 0.3 per cent month-on-month.