Fed’s rate release anticipated in busy week for markets

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Looking longer term, there has been little progress on inflation since last summer, when inflation dropped to three per cent. Inflation has remained roughly stable since then.
Looking longer term, there has been little progress on inflation since last summer, when inflation dropped to three per cent. Inflation has remained roughly stable since then.

A string of central bank decisions and important data releases will mean markets have plenty to focus on this week.

The Bank of Japan, the Federal Reserve and the Bank of England will all make their latest interest rate decisions this week, with the Fed likely to take most attention.

Markets expect the world’s most important central bank to leave interest rates on hold as rising bond yields have helped to further tighten monetary conditions.

“The surge in bond yields means the Fed is likely to remain on hold next week and probably in December too,” Michael Pearce, lead US economist at Oxford Economics said.

Bond yields have spiked over recent weeks as markets adjust to the higher-for-longer narrative being spun by central banks. Yields reflect the cost of borrowing so an increase in yields will have knock-on effects throughout the market.

Despite the Fed’s aggressive monetary tightening campaign, the US economy has remained startlingly resilient. Figures last week showed the economy grew at an annualised rate of 4.9 per cent in the third quarter.

“The stronger incoming data means officials won’t rule out an additional rate hike, but it’s clear most officials see that as conditional on a continued re-strengthening in job growth and inflation, which we think is unlikely,” Pearce noted.

The Fed’s decision will be announced at 7pm GMT on Wednesday. On Tuesday, investors will get a thorough look at the state of the European economy as October’s inflation data for the bloc is set to be released, along with GDP figures, for the third quarter.

Markets expect the bloc to have remained stagnant in the third quarter or perhaps even contracting.

“Activity data and surveys released so far all point to euro-zone GDP dropping slightly in Q3. Retail sales, industrial production and construction activity all remained below their average Q2 level in July and August,” Andrew Kenningham, chief Europe economist at Capital Economics commented.

More positively, inflation is expected to continue its downward trend with the headline rate falling to around 3.2 per cent.

The figures come the week after the European Central Bank paused its own rate hiking campaign, partly over concerns of slowing growth.