Global Central Banks in Tightening Mode

Monetary policy will be in the spotlight this week, with the Federal Reserve, the Bank of England (BoE), and the Bank of Japan (BoJ) all scheduled to hold policy meetings and decide on interest rates. Sweden’s central bank could be the first to act, with an interest rate decision to hike rates by 75 basis points (bps) expected tomorrow.

The Fed is also widely expected to raise interest rates by 75 bps. The Fed has raised its benchmark federal funds rate by a cumulative 225 bps since March, in an effort to combat rising prices as the rate of inflation has soared to 40-year highs in recent months. 

The Bank of England will announce its interest rate decision on Thursday. It’s expected to raise rates with inflation in the U.K. currently the highest among the G-7 countries and running at the fastest pace in 40 years. The BoE previously raised its key interest rate by 50 bps in August, pushing its benchmark rate to 1.75%.

The Bank of Japan has been the outlier among developed countries, keeping interest rates at record lows. Inflation in Japan is among the lowest of developed countries.

Also this week, central banks in the Philippines, Indonesia, and Taiwan are all expected to raise interest rates. Hikes are also expected by central banks of Switzerland and Norway.

“According to the CME Group’s FedWatch Tool, fed funds futures traders have put a 20% probability that the Fed will hike rates by a full percentage point this week. While that scenario is unlikely, several voting members of the FOMC have indicated that they would like to see the fed funds rate at 4% in 2023. That could shift the bias towards more large front-loaded hikes in this, and the next FOMC meeting in November.”