Jannah Theme License is not validated, Go to the theme options page to validate the license, You need a single license for each domain name.
USA

Fed, ECB, Bank of Japan Near Turning Point in ‘Critical Week’

Goldman Sachs economists said the BOJ’s ultra-dovish stance of negative interest rates will keep the U.S. and Japanese central banks’ interest rate differentials going forward.

Bloomberg | Bloomberg | Getty Images

of US Federal Reserve System, Bank of Japan and European Central Bank Both are due to announce major interest rate decisions this week, and both could approach pivotal moments in the trajectory of monetary policy.

“This should be a big week,” Goldman Sachs strategist Michael Cahill said in an email on Sunday.

“The Fed is expected to deliver what could be the last rate hike of a previously scheduled cycle,” said Cahill, G10 FX strategist.

“But as they come to an end, the BOJ could top them all by finally getting out of the starting block.”

Fed

Each central bank faces very different challenges. Fed ends monetary policy meeting last Wednesday Paused 10 consecutive rate hikes US domestic consumer price inflation fell to its lowest annualized rate in more than two years in June.

but Core CPI rateExcluding volatile food and energy prices, prices were still up 4.8% year-on-year and 0.2% month-on-month.

Policymakers have reiterated their determination to cut inflation to the central bank’s 2% target, and the latest data stream has bolstered the impression that the U.S. economy is showing resilience.

The market is almost certain that the Federal Open Market Committee will opt for a 25 basis point rate hike on Wednesday, setting the federal funds rate target at 5.25% to 5.5%, according to the paper. CME Group Fedwatch tool.

But with inflation and the labor market now consistently cooling, Wednesday’s expected rate hike could mark the end of 16 months of near-permanent monetary tightening.

“The Fed has signaled its intention to resume rate hikes if necessary, but the July rate hike could be the last, as markets currently expect, if July and August labor market and inflation data provide additional evidence that wage and inflation pressures have settled to levels consistent with the Fed’s target,” economists at Moody’s Investors Service wrote in a research note last week.

“However, the FOMC will continue to maintain a tight monetary policy stance to support softening demand and thus inflation.”

US likely to head into recession in late 2023 or early 2024, JP Morgan says

Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered, echoed this sentiment, saying future discussions would revolve around guidance issued by the Fed. Over the past week, analysts have suggested that policymakers remain “data-dependent” but would resist talk of a near-term rate cut.

“There are good reasons to skip September unless there is a big upside surprise in inflation, but the FOMC may be wary of giving even slightly dovish guidance,” Englander said.

“The way we see it, the FOMC sees a 30% chance of precipitation, but we think the impact of a false sunny forecast is greater than a false rain forecast, so it’s like a meteorologist distorting the forecast to rain.”

ECB

Recently, there have been downside surprises in inflation in the euro zone as well. Regional consumer price increase rate reaches 5.5% in JuneBut core inflation remains high at 5.4%, slightly higher than last month, and both numbers are still well above the central bank’s 2% target.

of ECB hiked key interest rates by 25 basis points It rose to 3.5% in June, breaking out of the Fed’s moratorium and continuing the series of rate hikes that began in July 2022.

Markets have priced in a more than 99% chance of another 25 basis points rate hike after the ECB’s meeting on Thursday, according to data from Refinitiv, and key central bank data reflect figures from Atlantic central banks that remain hawkish.

ECB chief economist Philip Lane said last month that Markets warned against pricing in rate cuts within the next two years.

Paul Hollingsworth, chief European economist at BNP Paribas, said a quarter-point rate hike, like the Fed, was all but pre-determined and the main focus of Thursday’s ECB announcement would be what the Governing Council indicates on the future course of policy rates.

ECB is getting closer to the final rate, say board members

“In contrast to June, when President Christine Lagarde said she would ‘very likely continue to raise rates in July’, Hollingsworth said in a memo last week, “We cannot expect President Lagarde to pre-promise further rate hikes to the Governing Council at its September meeting.”

“After all, recent comments suggest that even among the hawks there is no strong confidence in a rate hike in September, let alone a broad consensus that suggests a rate hike is possible this month.”

Given the lack of clear direction, Hollingsworth said traders would be trying to read between the lines of the ECB’s communications to establish a bias toward tightening, neutralizing or pausing.

At its last meeting, the Governing Council said: “Future decisions will ensure that the ECB’s key interest rate is set at a level sufficiently restrictive to bring inflation back to its 2% medium-term target in a timely manner, and that it remains at that level for as long as necessary.”

Croatia central bank governor says rate hike likely again in September

BNP Paribas expects this to remain unchanged, but Hollingsworth suggested it represents an “implicit bias toward further tightening” and “room to wiggle” in case future inflation data disappoint.

“But the message at the press conference could be more nuanced, suggesting that we might need more than we need more,” he added.

“Lagarde could choose to reduce the focus on September by pointing to the possibility of a Fed-style ‘skip’, leaving the possibility of a rate hike at subsequent meetings.”

Bank of Japan

Far from the Western debate on the final tightening policy, the question in Japan is when the central bank will tighten the final policy.

of Bank of Japan Japan introduced negative interest rates for the first time in 2016 in hopes of stimulating the world’s third-largest economy from a long period of “stagflation” characterized by low inflation and slowing growth, and in June left its short-term interest rate target unchanged at minus 0.1%. Policymakers also left the central bank’s yield curve control (YCC) policy unchanged.

However, Japan’s first-quarter growth was revised sharply upward to 2.7% last month amid rising inflation. It exceeded the Bank of Japan’s target of 2% for 15 consecutive months., was 3.3% in June compared to the previous year. This has led to some early speculation that the BOJ will eventually be forced to begin reversing its ultra-loose monetary policy, but the market has not yet priced in an interest rate or YCC revision in Friday’s announcement.

``Premature'' for BOJ to change policy, professor says

Yield curve control is typically a temporary measure by a central bank to target long-term interest rates and buy or sell government bonds at the level required to reach that rate.

Under Japan’s YCC policy, the central bank has set short-term interest rates at minus 0.1% and 10-year government bond yields at around zero and 0.5%, with the goal of maintaining an inflation target of 2%.

Barclays said on Friday that Japan’s output gap (the difference between actual and potential economic output) remained negative in the first quarter, while real wage growth remained in negative territory and the inflation outlook was uncertain. Bank of England economists said a move away from the YCC is expected at the central bank’s meeting in October, but this week’s vote could be crucial.

“We believe the Governing Council will reach a majority vote, splitting votes between relatively hawkish members (Tamura, Takada) who stress the need to revise the YCC, and more neutral members, including Governor Ueda, and reflationist doves (Adachi, Noguchi),” said Christian Keller, head of economic research at Barclays.

“We believe this deviation from the unanimous decision to maintain the YCC may raise market expectations for future policy revisions. In this context, the post-MPM press conference in July and the synopsis of opinions released on August 7 will be of particular importance.”

Summarize this content to 100 words Goldman Sachs economists said the BOJ’s ultra-dovish stance of negative interest rates will keep the U.S. and Japanese central banks’ interest rate differentials going forward.Bloomberg | Bloomberg | Getty Imagesof US Federal Reserve System, Bank of Japan and European Central Bank Both are due to announce major interest rate decisions this week, and both could approach pivotal moments in the trajectory of monetary policy.“This should be a big week,” Goldman Sachs strategist Michael Cahill said in an email on Sunday.“The Fed is expected to deliver what could be the last rate hike of a previously scheduled cycle,” said Cahill, G10 FX strategist.“But as they come to an end, the BOJ could top them all by finally getting out of the starting block.”FedEach central bank faces very different challenges. Fed ends monetary policy meeting last Wednesday Paused 10 consecutive rate hikes US domestic consumer price inflation fell to its lowest annualized rate in more than two years in June.but Core CPI rateExcluding volatile food and energy prices, prices were still up 4.8% year-on-year and 0.2% month-on-month.Policymakers have reiterated their determination to cut inflation to the central bank’s 2% target, and the latest data stream has bolstered the impression that the U.S. economy is showing resilience.The market is almost certain that the Federal Open Market Committee will opt for a 25 basis point rate hike on Wednesday, setting the federal funds rate target at 5.25% to 5.5%, according to the paper. CME Group Fedwatch tool.But with inflation and the labor market now consistently cooling, Wednesday’s expected rate hike could mark the end of 16 months of near-permanent monetary tightening.“The Fed has signaled its intention to resume rate hikes if necessary, but the July rate hike could be the last, as markets currently expect, if July and August labor market and inflation data provide additional evidence that wage and inflation pressures have settled to levels consistent with the Fed’s target,” economists at Moody’s Investors Service wrote in a research note last week.”However, the FOMC will continue to maintain a tight monetary policy stance to support softening demand and thus inflation.”Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered, echoed this sentiment, saying future discussions would revolve around guidance issued by the Fed. Over the past week, analysts have suggested that policymakers remain “data-dependent” but would resist talk of a near-term rate cut.“There are good reasons to skip September unless there is a big upside surprise in inflation, but the FOMC may be wary of giving even slightly dovish guidance,” Englander said.”The way we see it, the FOMC sees a 30% chance of precipitation, but we think the impact of a false sunny forecast is greater than a false rain forecast, so it’s like a meteorologist distorting the forecast to rain.”ECBRecently, there have been downside surprises in inflation in the euro zone as well. Regional consumer price increase rate reaches 5.5% in JuneBut core inflation remains high at 5.4%, slightly higher than last month, and both numbers are still well above the central bank’s 2% target.of ECB hiked key interest rates by 25 basis points It rose to 3.5% in June, breaking out of the Fed’s moratorium and continuing the series of rate hikes that began in July 2022.Markets have priced in a more than 99% chance of another 25 basis points rate hike after the ECB’s meeting on Thursday, according to data from Refinitiv, and key central bank data reflect figures from Atlantic central banks that remain hawkish.ECB chief economist Philip Lane said last month that Markets warned against pricing in rate cuts within the next two years.Paul Hollingsworth, chief European economist at BNP Paribas, said a quarter-point rate hike, like the Fed, was all but pre-determined and the main focus of Thursday’s ECB announcement would be what the Governing Council indicates on the future course of policy rates.”In contrast to June, when President Christine Lagarde said she would ‘very likely continue to raise rates in July’, Hollingsworth said in a memo last week, “We cannot expect President Lagarde to pre-promise further rate hikes to the Governing Council at its September meeting.”“After all, recent comments suggest that even among the hawks there is no strong confidence in a rate hike in September, let alone a broad consensus that suggests a rate hike is possible this month.”Given the lack of clear direction, Hollingsworth said traders would be trying to read between the lines of the ECB’s communications to establish a bias toward tightening, neutralizing or pausing.At its last meeting, the Governing Council said: “Future decisions will ensure that the ECB’s key interest rate is set at a level sufficiently restrictive to bring inflation back to its 2% medium-term target in a timely manner, and that it remains at that level for as long as necessary.”BNP Paribas expects this to remain unchanged, but Hollingsworth suggested it represents an “implicit bias toward further tightening” and “room to wiggle” in case future inflation data disappoint.”But the message at the press conference could be more nuanced, suggesting that we might need more than we need more,” he added.”Lagarde could choose to reduce the focus on September by pointing to the possibility of a Fed-style ‘skip’, leaving the possibility of a rate hike at subsequent meetings.”Bank of JapanFar from the Western debate on the final tightening policy, the question in Japan is when the central bank will tighten the final policy.of Bank of Japan Japan introduced negative interest rates for the first time in 2016 in hopes of stimulating the world’s third-largest economy from a long period of “stagflation” characterized by low inflation and slowing growth, and in June left its short-term interest rate target unchanged at minus 0.1%. Policymakers also left the central bank’s yield curve control (YCC) policy unchanged.However, Japan’s first-quarter growth was revised sharply upward to 2.7% last month amid rising inflation. It exceeded the Bank of Japan’s target of 2% for 15 consecutive months., was 3.3% in June compared to the previous year. This has led to some early speculation that the BOJ will eventually be forced to begin reversing its ultra-loose monetary policy, but the market has not yet priced in an interest rate or YCC revision in Friday’s announcement.Yield curve control is typically a temporary measure by a central bank to target long-term interest rates and buy or sell government bonds at the level required to reach that rate. Under Japan’s YCC policy, the central bank has set short-term interest rates at minus 0.1% and 10-year government bond yields at around zero and 0.5%, with the goal of maintaining an inflation target of 2%.Barclays said on Friday that Japan’s output gap (the difference between actual and potential economic output) remained negative in the first quarter, while real wage growth remained in negative territory and the inflation outlook was uncertain. Bank of England economists said a move away from the YCC is expected at the central bank’s meeting in October, but this week’s vote could be crucial.”We believe the Governing Council will reach a majority vote, splitting votes between relatively hawkish members (Tamura, Takada) who stress the need to revise the YCC, and more neutral members, including Governor Ueda, and reflationist doves (Adachi, Noguchi),” said Christian Keller, head of economic research at Barclays.“We believe this deviation from the unanimous decision to maintain the YCC may raise market expectations for future policy revisions. In this context, the post-MPM press conference in July and the synopsis of opinions released on August 7 will be of particular importance.”
https://www.cnbc.com/2023/07/24/a-momentous-week-ahead-as-the-fed-the-ecb-and-the-bank-of-japan-reach-a-pivotal-point.html Fed, ECB, Bank of Japan Near Turning Point in ‘Critical Week’

Back to top button