(Bloomberg) – Federal Reserve officials face their biggest challenge in months as they debate whether to keep raising interest rates this week to calm inflation, or take a break amid market turmoil fueled by recent bank failures.
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Prior to the Silicon Valley Bank collapse and subsequent fallout, Fed policymakers were poised to hike rates as much as 50 basis points after a data slew suggested the he economy was much stronger than officials thought at the start of the year.
Now, given financial market volatility, many Fed watchers are expecting a quarter-point lower increase, and some are saying the U.S. central bank will pause after a two-day meeting that starts Tuesday.
The decision follows a 50 basis point rate hike from the European Central Bank on Thursday. President Christine Lagarde said the ECB remained committed to tackling inflation, while closely monitoring banking strains.
Also eagerly awaited from the Fed meeting with an update to the economic projections summary – a quarterly report featuring attendees’ forecasts for everything from inflation to interest rates – and Chairman Jerome Powell’s press conference after the meeting.
Amid the banking sector turmoil, Powell will likely face questions about the central bank’s oversight of SVB and other troubled entities.
He will also have to be cautious when talking about the likely future path of interest rates. Before the banking problems emerged, Fed officials had indicated that rates were expected to top 5% this year and stay there until inflation returned to its 2% target.
Still, heightened uncertainty about the extent to which bank capitalization issues — exacerbated by the Fed’s rapid interest rate hikes and impact on Treasury yields — will impact the economy in the sense of wide could limit Powell’s ability to tighten much more in the future.
What Bloomberg Economics says…
“The FOMC faces its toughest policy decision in recent memory on March 22. Market expectations have shifted sharply – from a 50 basis point rise to a pause – as fears of banking contagion replace concerns We expect the Fed to hike 25 basis points, bringing the upper bound down from 4.75% to 5% The reacceleration in inflation is keeping the pressure on to continue higher.
— Anna Wong, Chief Economist in the United States. For a full analysis, click here
Elsewhere, more than a dozen other central banks set policy over the coming week. Economists predict rate hikes in the UK, Switzerland, Norway, Nigeria and the Philippines, while Brazil and Turkey are likely to hold. Meanwhile, traders betting on the Bank of Canada’s rate path will get a new inflation reading.
Click here to see what happened last week and below is our summary of what is happening in the global economy.
On Monday, the People’s Bank of China will likely report that banks left their prime lending rates unchanged as the economy gradually recovers.
In Tokyo, a summary of views from the Bank of Japan’s meeting earlier this month will shed more light on the rationale for maintaining monetary policy stability ahead of Kazuo Ueda’s arrival at the helm in April.
Reserve Bank of Australia official Chris Kent could offer an update on policy guidance and any concerns about financial market contagion on Monday. Those remarks will likely prove more timely than Tuesday’s expected minutes of the RBA’s March meeting.
South Korea’s early trade figures will offer a pulse check on global conditions.
Japan’s inflation figures on Friday are expected to mirror earlier data that pointed to cooling prices, helped in large part by newly subsidized electricity bills.
The central banks of Hong Kong and Taiwan will announce their interest rates on Thursday.
Europe, Middle East, Africa
The Fed may be the dominant central bank move this week, but several others will also catch investors’ attention.
The Bank of England takes center stage in Europe. Officials await the latest UK inflation reading on Wednesday, perhaps showing that price growth is still close to double digits. Most economists predict rates will be raised by a quarter point the next day, although with financial tensions still simmering a minority sees no change.
Here is a brief overview of the other decisions due:
Thursday’s Swiss National Bank meeting is a quarterly meeting and there is some catching up to do, so a rise of up to 50 basis points is widely expected. Overshadowing the result, Credit Suisse Group AG, the stricken bank, offered a lifeline to help contain the global turmoil.
The same day in Norway, where authorities plan to raise rates another quarter point to extend the cycle of monetary tightening in the oil-rich economy.
An Icelandic decision is expected on Wednesday, with another big rate hike possible.
In the south, central banks will also be very active. Here is a brief summary:
Nigeria could raise rates on Tuesday to contain inflation which is near an 18-year high and to encourage investment.
In Angola on the same day, officials could cut benchmark borrowing costs for the second time this year as the kwanza remains stable, commodity prices are expected to moderate and a decline in price growth is expected to continue. .
In Morocco on that day, the central bank will most likely pause monetary tightening as food prices begin to fall.
And in Turkey on Thursday, authorities are expected to hold rates steady. Any sign of future politics will be essential as the country heads into elections in May, where President Recep Tayyip Erdogan faces the biggest challenge of his two decades in power.
After Thursday’s ECB meeting, which ended with a half-liter hike but no future direction, more than a dozen of its policymakers will be speaking in the coming days. President Lagarde is expected to attract the most attention with her testimony to the European Parliament on Monday.
More clues to the backdrop of the banking system may be available when his ECB colleague Andrea Enria, the euro region’s top regulator, speaks with the same panel of lawmakers the next day.
Lagarde is also among the officials who will speak at the ECB and its observers conference in Frankfurt on Wednesday, with several others expected to make appearances elsewhere during the week.
Meanwhile, the Eurozone and UK Purchasing Managers Indices will give an indication of industry strength as China reopens, and the German Council of Economic Experts will release an update. growth prospects.
A busy week in Brazil begins with the central bank’s survey of market expectations for inflation, which continues to beat the target through 2025.
Banco Central do Brasil is almost certain to keep its key rate at 13.75% for a fifth consecutive meeting, although policymakers may strike a dovish tone in the post-decision statement.
After minimal disinflation in the last three mid-month consumer price readings, analysts expect a steeper deceleration for mid-February printing and into the second quarter due to base effects, before a slight increase in the second half.
Chile’s fourth-quarter output report may show the Andean country narrowly avoided falling into a technical recession, in part due to untapped household liquidity and the impact of China’s reopening.
In Argentina, four consecutive negative readings of its monthly economic activity indicator point to a quarterly contraction in output ahead of a tough 2023.
In Mexico, the weakness seen in retail sales since May has likely extended into January, while slumping demand from the United States, the country’s largest export market, is expected to weigh on January GDP rough data.
Initial consensus calls for mid-month inflation near a one-year low – albeit still more than double the 3% target – while the somewhat stickier core reading extends a decline from the November high of 8.66% over two decades, according to Banxico forecast.
–With help from Robert Jameson, Malcolm Scott, Sylvia Westall and Stephen Wicary.
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