Summary:
- Federal Reserve is set to raise rates by 25 basis points to a 22-year high, but Powell's messaging on future hikes remains uncertain.
- ECB expected to raise rates by 25 basis points, with attention on their September decision and Lagarde's nuanced signaling.
- Bank of Japan to stay on hold until inflation sustainsably stays above 2 percent, despite inflation indicators being well above the target.
- Latin American central banks, previously aggressive in raising rates, are now beginning to cut rates, influencing global markets.
As central banks convene for their policy meetings, the focus is on messaging for future rate hikes. Both the Federal Reserve and the European Central Bank (ECB) have already experienced recent rate hikes, and now the attention shifts to what they will signal for the coming months.
The Federal Reserve is back on the rate hiking path after a pause in June and July to assess the impact of their rate hikes. They are expected to raise rates by 25 basis points, bringing it to a 22-year high, ranging from five and a quarter to five and a half percent. Federal Reserve Chairman Jerome Powell's messaging on the economic outlook, inflation, and the possibility of further rate hikes in September will be crucial. While some economists believe this might be the last rate hike, recession odds still linger, making a dovish stance a possibility.
Meanwhile, the European Central Bank is also expected to raise rates by 25 basis points, almost guaranteed after statements from ECB President Christine Lagarde. The rate is projected to reach 3.75 percent, and the question remains whether they will take a further 25 basis point step to 4.0 percent, which could be the terminal rate. The ECB's decision for September is not certain, and it will depend on inflation data and Lagarde's nuanced signaling during the press conference after their meeting this week.
The Bank of Japan is expected to remain on hold yet again, and Governor Haruhiko Kuroda has emphasized that they won't move until inflation sustainsably stays above 2 percent. Despite inflation indicators being well above 2 percent for months, BOJ remains cautious. Around 80 percent of economists predict the BOJ will leave all policy levers unchanged, even though there is a possibility of a 100 basis point cut.
In Latin America, many central banks were among the first to raise rates aggressively, but now some are starting to cut rates. This trend is being closely watched by developing countries and global markets alike.
The financial world awaits the outcomes of these pivotal central bank policy meetings, anticipating key signals for future economic trends and market movements.