(Bloomberg) – Federal Reserve officials face their biggest challenge in months as they weigh whether to continue raising interest rates this week to cool inflation or take a pause amid market conditions. chaos due to recent bank failure.
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In the wake of the fall of the Silicon Valley Bank and its aftermath, Fed policymakers are poised to raise interest rates by as much as 50 basis points after a string of data showed a stronger economy. more than officials thought at the start of the year.
Now, given the volatility of financial markets, many Fed watchers expect a smaller increase, at a quarter, and some say the US central bank will pause altogether after the crash. The two-day meeting begins on Tuesday.
The decision comes after the European Central Bank raised interest rates by 50 basis points on Thursday. President Christine Lagarde said the ECB remained committed to fighting inflation, while closely monitoring banking tensions.
Also highly anticipated from the Fed meeting is an update to the Summary of Economic Forecasts — a quarterly report that gives participants forecasts on everything from inflation to interest rates — and the meeting. reported after the meeting of Chairman Jerome Powell.
Amid banking turmoil, Powell will likely face questions around the central bank’s oversight of SVB and other struggling institutions.
He will also need to be careful when talking about possible future interest rate trends. Before the banking problems emerged, Fed officials had indicated that rates would need to rise above 5% this year and stay there until inflation was on track to drop to target 2. %.
However, increased uncertainty about how much of bank capitalization problems – exacerbated by the Fed’s rapid rate hikes and impact on Treasury yields – will impact the economy. broader economy and may limit Powell’s ability to tighten further in the future.
What Bloomberg Economics Says…
“The FOMC faced its toughest policy decision in recent memory on March 22. Market expectations have changed drastically – from a 50 basis point increase to a pause – due to concerns about the The banking contagion replaces inflation concerns. We expect the Fed to increase it by 25 basis points, taking the upper limit from 4.75% to 5%. Inflation picks up again, keeping pressure on the upside.”
— Anna Wong, chief US economist. For full analysis, click here
Elsewhere, another 12 central banks will set policy over the next week. Economists expect rate hikes in the UK, Switzerland, Norway, Nigeria and the Philippines, while Brazil and Turkey are likely to stay the same. Meanwhile, traders betting on the Bank of Canada interest rate roadmap will receive fresh inflation figures.
Click here for what happened last week, and below is our roundup of what’s to come in the global economy.
Asia
On Monday, the People’s Bank of China is likely to report that banks will keep their lending rates unchanged as the economy gradually recovers.
In Tokyo, a summary of comments from the Bank of Japan meeting earlier this month will shed more light on the rationale for keeping monetary policy steady before Kazuo Ueda comes to power. in April.
Chris Kent, the Reserve Bank of Australia official, on Monday could offer an updated perspective on the policy stance and any concerns about the contagion in financial markets. Those comments will likely prove more timely than Tuesday’s minutes from the RBA’s March meeting.
Initial trading numbers from Korea will provide pulse-checking information on global conditions.
Japan’s inflation figures on Friday are set to reflect earlier data that showed prices cooling, mainly thanks to 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 main central bank making decisions this week, but several other decisions will also attract investors’ attention.
The Bank of England occupies a central position in Europe. Officials are awaiting the latest UK inflation results on Wednesday, which could suggest the pace of price growth remains near double digits. Most economists expect interest rates to rise by a quarter point the next day, and although financial stress is still simmering, a few see no change.
Here’s a quick summary of other decisions made:
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The Swiss National Bank meeting on Thursday is a quarterly meeting and needs to be caught up, so a move up to 50 basis points is widely anticipated. Overshadowing the results was Credit Suisse Group AG, the struggling bank that provided a lifeline to help stave off global turmoil.
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The same day in Norway, where officials are forecast to raise interest rates by a quarter point to prolong the cycle of monetary tightening in the oil-rich economy.
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An Icelandic decision is due on Wednesday, with another major rate hike possible.
Looking south, central banks will also be very active. Here’s a quick recap:
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Nigeria may raise interest rates on Tuesday to curb inflation near an 18-year high and encourage investment.
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In Angola on the same day, officials may cut benchmark borrowing costs for a second time this year as the kwanza remains stable, commodity prices are seen as moderate and the downward trend looks set to continue.
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In Morocco on that day, the central bank is likely to pause monetary tightening as food prices begin to fall.
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And in Turkey on Thursday, officials are expected to leave rates unchanged. Any indication of future policy will be key as the country heads towards elections in May, where President Recep Tayyip Erdogan faces the biggest challenge of his two decades in power.
Following Thursday’s ECB meeting, which ended with a half-pin increase but no future guidance, more than a dozen of its policymakers will speak in the coming days. President Lagarde is likely to attract the most attention with his testimony before the European Parliament on Monday.
Other clues to the background of the banking system may become available when her ECB colleague, Andrea Enria, the eurozone’s top regulator, spoke to the same group of lawmakers on Thursday. the next day.
Lagarde is also among the officials who will take the stage at the ECB’s conference and its followers in Frankfurt on Wednesday, and several others are expected to appear elsewhere during the week.
Meanwhile, purchasing managers indexes for the euro area and the UK will show industry strength as China reopens and the German Council of Economic Experts will publish an updated growth outlook. .
Latin America
A busy week in Brazil began with the central bank’s survey of market expectations for inflation, which continues to outpace target through 2025.
Banco Central do Brasil will almost certainly keep the main rate at 13.75% for the fifth consecutive meeting, although policymakers are likely to adopt a dovish tone in the post-decision statement. .
After reducing inflation to a minimum in three consumer price readings mid-month, analysts see a sharper deceleration in mid-February and into the second quarter due to fundamental effects, before increasing in the second half of the year.
Chile’s fourth-quarter output report could show the Andean nation narrowly avoided a technical recession, partly due to untapped household liquidity and the impact of China’s reopening. again.
In Argentina, four consecutive negative readings on the country’s monthly economic activity indicator suggest a contraction in quarterly output as we head into a challenging 2023.
In Mexico, the weakness in retail sales since May could extend into January, while slumping demand from the US, the country’s biggest export market, is likely to weigh on the data. GDP representative of January.
The initial consensus suggested that mid-month inflation is on the verge of hitting a one-year low – although still more than double the 3% target – while a somewhat tighter core index prolongs the decline. from November’s two-decade high of 8.66%, in line with Banxico’s forecast.
–With support from Robert Jameson, Malcolm Scott, Sylvia Westall and Stephen Wicary.
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