Federal Reserve Chairman Powell announced at a press conference at the Fed’s William McChesney Martin Building in Washington, DC, on June 12, 2024 that interest rates would remain unchanged.
Kevin Dickey | Getty Images
This week, a series of major central banks will hold monetary policy meetings, with investors bracing for two-way changes in interest rates.
The Federal Reserve’s much-anticipated two-day meeting begins on Tuesday and is expected to be in focus.
The Fed is widely expected to join other central banks around the world in starting its own rate-cutting cycle. The only remaining question appears to be how much the Fed will cut interest rates.
Traders currently believe a 25 basis point cut is the most likely outcome, although as many as 41% expect a half-point cut, 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, Norges Bank and the South African Reserve Bank will follow suit on Thursday.
A busy week of central bank meetings will come to an end when the Bank of Japan releases its latest interest rate decision at the end of its two-day meeting on Friday.
“We’re entering a tapering phase,” John Bilton, global head of multi-asset strategy at J.P. Morgan Asset Management, told CNBC’s “Squawk Box Europe” on Thursday.
Before the ECB’s latest rate cut, Bilton said the Federal Reserve would also cut interest rates by 25 basis points this week, and the Bank of England “may join in.”
“We have all the ingredients to begin a fairly long cycle of cuts, but probably not related to the recession – it’s an unusual arrangement,” Bilton said.
“What that means is, in my view, on the price discovery side, the focus around those who believe that actually the Fed [is] Too late, ECB [is] Lately, this is a recession, and those who believe, like me, that our economy is not imbalanced, this will actually spur further gains.
The Fed decides
Federal Reserve policymakers have laid the groundwork for rate cuts in recent weeks. Currently, the Fed’s target interest rate is 5.25% to 5.5%.
Some economists believe that the Federal Reserve should cut interest rates by 50 basis points in September, accusing its previous tightening of monetary policy of “too far, too fast.”
Others described the move as “very dangerous” to the market and would instead prompt the Federal Reserve to cut interest rates by 25 basis points.
“We’re more likely to be 25, but [would] I hope to see 50,” David Volpe, deputy chief investment officer of Emerald Asset Management, said on CNBC’s “Squawk Box Europe” on Friday.
“The reason for doing 50 next week is more or less a safety mechanism. There are seven weeks between next week and…the November meeting, and a lot of things can go wrong,” Volpe said.
“So, it’s more of an approach of trying to get ahead of the curve. The Fed is kind of not keeping up, so we thought it would be great if they got ahead of the curve, which is what the 50 banks are doing now.” Make a decision in November and December, maybe they’ll do 25 at that point,” he added.
brazil and uk
For Brazil’s central bank, which has cut interest rates several times since July last year, stronger-than-expected second-quarter economic data is considered likely to lead to a rate hike in September.
“We expect the central bank to raise the Selic rate by 25 basis points (to 10.75%) next week and to 11.50% by the end of 2024,” TS Lombard economist Wilson Ferrarezi said in a research note released on Wednesday. .
“Further rate hikes in 2025 cannot be ruled out and will depend on the strength of domestic activity in the fourth quarter of 2024,” he added.
Traffic outside the headquarters of the Central Bank in Brasilia, Brazil, Monday, June 17, 2024.
Bloomberg | Bloomberg | Getty Images
In the UK, a rate cut by the Bank of England on Thursday is seen as unlikely. A Reuters poll released on Friday found that all 65 economists surveyed expected the Bank of England to hold interest rates steady at 5%.
The Bank of England cut interest rates for the first time in more than four years in early August.
Ruben Segura Cayuela, Bank of America’s head of European economics, told CNBC’s “Squawk Box Europe”: “We’re going to have quarterly cuts starting here. We don’t think they’re going to be next week. Action was taken by a vote of 7 to 2.
He added that the next Bank of England rate cut would likely come in November.
South Africa, Norway and Japan
The South African Reserve Bank is expected to cut interest rates on Thursday, according to economists polled by Reuters. The move would mark the first time the central bank has done so since it responded to the coronavirus pandemic four years ago.
Norges Bank is scheduled to hold its next meeting on Thursday. In mid-August, Norges Bank kept interest rates unchanged at a 16-year high of 4.5% and said the policy rate “is likely to remain at this level for some time to come.”
Meanwhile, the Bank of Japan is not expected to raise interest rates this weekend, although most economists polled by Reuters expect a hike before the end of the year.
