This week, there will be a lot of focus on monetary policy as the Federal Reserve, Bank of England (BoE), and Bank of Japan (BoJ) all have meetings where they will decide on interest rates. Sweden’s central bank is expected to make an interest rate decision that would hike rates by 75 basis points tomorrow.
The Fed is also widely expected to raise interest rates by 75 bps in order to combat rising prices as the rate of inflation has soared to 40-year highs. The Fed has raised its benchmark federal funds rate by a cumulative 225 bps since March in an effort to keep prices under control.
The Bank of England is set to announce its interest rate decision on Thursday, with many expecting the institution to raise rates in light of increasing inflation levels in the U.K. Inflation is currently the highest among G-7 countries and has been steadily rising for some time now, prompting the BoE to previously raise its key interest rate by 50 basis points (bps) in August, pushing its benchmark rate up to 1.75%.
The Bank of Japan has been keeping interest rates at record lows, despite low inflation levels in comparison to other developed countries. This decision may be an effort to stimulate the economy and encourage spending. This week, central banks in the Philippines, Indonesia, and Taiwan are all expected to raise interest rates. Hikes are also expected by the central banks of Switzerland and Norway. This is due to increasing concerns about inflation and the global economy.
The CME Group’s FedWatch Tool reports that fed funds futures traders have put a 20% probability on the Federal Reserve hiking interest rates by one percentage point this week. While such a scenario is unlikely, several voting members of the FOMC have indicated that they would like to see the federal funds rate at 4% within five years. This could shift the bias towards more large front-loaded hikes in this and next month’s FOMC meeting.