Will the Fed accelerate its “scaling down” bond purchases?

When US policymakers meet on Tuesday, they will discuss how quickly they may need to scale back the central bank’s asset purchase plan to allow them the flexibility to raise interest rates next year.

Just last month, the Federal Reserve announced that it would reduce its $120 billion bond purchase program at a rate of $15 billion per month. This indicates that the stimulus measures will cease at the end of June.

A series of recent economic reports show that the labor market is tightening, and there is increasing evidence that inflationary pressures are expanding and becoming more persistent, which has prompted Jay Powell and other senior officials to turn.

At a congressional hearing earlier this month, the Fed Chairman said he supports ending the so-called reductions “maybe several months earlier than originally planned.” Market expectations are adjusted immediately. Investors expect to raise interest rates for the first time in June, at least once again later this year.

More than half of the 48 economists participating in the research Recent survey The Financial Times and the Global Market Initiative of the University of Chicago Booth School of Business have stated that the Fed may stop increasing the size of its balance sheet before the end of March, “somewhat” or “very”.

This may allow for a rate hike as early as the first quarter, and 10% of respondents believe this is reasonable. However, most people said that the Fed will take action in the next quarter.

The two-day conference will hold a press conference on Wednesday, at which time a series of new economic forecasts and updated personal interest rate forecasts will be released.

September editionThis is the last time a dot matrix has been released, showing that officials have different opinions on the prospect of interest rate hikes in 2022. At least 3 times are expected to be in 2023, and the other 3 times are expected to be in 2024. Economists this time expect to make multiple adjustments in the next year and beyond. Colby Smith

Will Omicron keep the Bank of England on hold?

As the spread of the Omicron coronavirus variant has disrupted the domestic economic outlook, investors have withdrawn their bets on the Bank of England to raise interest rates this month.

The market predicts that the possibility of the bank’s announcement on Thursday that it will increase borrowing costs from the current historical low of 0.1% to 0.25% is about one-third. Before the emergence of new variants, these possibilities were about 75% in late November.

Michael Saunders, one of the two Bank of England interest rate setters who supported the November rate hike, said earlier this month that waiting to observe the impact of Omicron on the economy may have “advantages” before tightening monetary policy. “.

An economist at Goldman Sachs said the impact may be relatively small, reducing growth this quarter by 0.1 percentage point, adding that the labor market and wage growth remain strong. They stated that the Bank of England will instead focus on “risk management” and therefore may keep interest rates unchanged.Nevertheless, the data released on Friday showed that the British economy Almost no growth In October, the supply chain disruption hit the manufacturing and construction industries, while the expansion of the service industry slowed.

Goldman Sachs said in a report: “This is still an unresolved decision.” “We expect [BoE] It indicates that this is just a short delay to gather more information about Omicron, and that it is still appropriate to raise interest rates in the coming months. “

The market is currently fully digesting the boost from the next Bank of England meeting in February. If the central bank remains unchanged on Thursday, policymakers will not be so surprised compared to the November meeting. Confusing investors’ expectations The interest rate hike caused the pound to plummet. Tommy Stabington

Will the European Central Bank increase its forecast of price growth?

Christine Lagarde (Christine Lagarde) this week will start the process of withdrawing the large-scale monetary stimulus measures introduced by the European Central Bank to protect the economy from last year’s pandemic.

Since the outbreak of the virus, the President of the European Central Bank has purchased 2.2 tons of mainly government bonds and provided banks with a similar amount of ultra-low loans. There is still a long way to go to normalize monetary policy.

Lagarde will almost certainly begin announcing on Thursday that the 185 million euro pandemic emergency purchase plan-the bank’s flagship plan to respond to the crisis-will stop net purchases in March, as she had already hinted in October.

The key question for investors is how many bonds the European Central Bank will promise to buy after March. Most analysts expect that it will reduce the “cliff edge” of its bond purchases after March by strengthening the older quantitative easing program, which is still adding 20 billion euros in assets each month.

It can achieve this goal by increasing the monthly purchases under the old asset purchase plan to approximately 40 billion euros, or adding hundreds of billions of additional “envelopes” for the rest of the year.

Peter Goves, European interest rate strategist at MFS Investment Management, said: “I think they will try to design a gentle transition.”

After Eurozone inflation Skyrocket The rate of reaching 4.9% in November was faster than expected, the highest level since the introduction of a single currency more than 20 years ago. It is expected that the European Central Bank will also increase its forecast for price growth exceeding 2% this year and next year. This will be the first time this has happened in ten years.

But it may also predict that inflation will fall below the target in 2023 and 2024, although the magnitude is small, which justifies its decision to maintain large-scale stimulus measures for most of next year. Martin Arnold