Federal Reserve Chairman Jerome Powell announces interest rates will remain unchanged during a press conference at the Federal Reserve’s William McChesney Martin Building in Washington, DC, on June 12, 2024.
Kevin Dietsch | Getty Images
A host of major central banks will hold monetary policy meetings this week, with investors bracing for moves on interest rates in both directions.
The Federal Reserve’s highly anticipated two-day meeting, which begins on Tuesday, will be in focus.
The central bank of the United States is widely anticipated to join others around the world in starting their own rate-cutting cycle. The only remaining question seems to be how much the Fed will cut rates.
Traders currently see a quarter-point cut as the most likely outcome, although as many as 41% predict a half-point move, according to CME FedWatch Tool.
Elsewhere, Brazil’s central bank is scheduled will hold their next policy meetings on Tuesday and Wednesday. The Bank of England, Norway’s Norges Bank and the South African Reserve Bank will follow on Thursday.
A busy week of central bank meetings will end when the Bank of Japan delivers its latest interest rate decision at the end of its two-day meeting on Friday.
“We are entering a period of tapering,” John Bilton, global head of multi-asset strategy at JP Morgan Asset Management, told CNBC’s “Squawk Box Europe” on Thursday.
Speech to the European Central Bank the most recent quarter-point interest rate cutBilton said the Fed would also cut interest rates by 25 basis points this week, with the Bank of England “likely to join in” after the UK economy stagnated for a second straight month in July.
“We have all the ingredients to start a fairly prolonged cycle of cuts that probably aren’t linked to a recession — and that’s an unusual setup,” Bilton told CNBC’s “Squawk Box Europe.”
“That means we have a lot of volatility in my mind about price discovery around who believes that the Fed is actually [is] late, ECB [is] late, this is a recession and people, like me, believe that we don’t have imbalances in the economy, and this will actually spur further growth.”
Fed decision
Fed policymakers have been laying the groundwork for a rate cut in recent weeks. The Fed’s target rate is currently between 5.25% and 5.5%.
Some economists say the Fed should cut interest rates by 50 basis points in September, accusing the central bank of previously “too far, too fast“with tight monetary policy.
Others have described such a move as one that would be “very dangerous“for markets, instead prompting the central bank to cut interest rates by 25 basis points.
“We have a good chance of 25 but [would] “I would love to see 50,” David Volpe, deputy chief investment officer at Emerald Asset Management, told CNBC’s “Squawk Box Europe” on Friday.
“And the reason you do 50 weeks is more or less a safety mechanism. You have seven weeks between next week and… the November meeting, and a lot of things can go wrong,” Volpe said.
“So it would be a method of trying to get ahead of things. The Fed is a little bit behind, so we think it would be good for them to go ahead, do 50 now, and then make a decision in November and December. Maybe they’ll do 25 at that point,” he added.
Brazil and the United Kingdom
For Brazil’s central bank, which has cut interest rates several times since last July, stronger-than-expected second-quarter economic data is a boost. considered likely leading to a rate hike in September.
“We expect Banco Central to raise the Selic rate by 25 basis points next week (to 10.75%) and take it to 11.50% by end-2024,” Wilson Ferrarezi, an economist at TS Lombard, said in a research note published on September 11.
“A further rate hike in 2025 cannot be ruled out and will depend on the strength of domestic activity in the fourth quarter of 2024,” he added.
Traffic outside the Central Bank of Brazil headquarters in Brasilia, Brazil, on Monday, June 17, 2024.
Bloomberg | Bloomberg | Getty Images
In Britain, a Bank of England (BOE) interest rate cut on Thursday is seen as unlikely. A Reuters poll, published on Fridayfound that all 65 economists surveyed expected the BOE to keep interest rates on hold at 5%.
Central Bank delivered cut interest rates for the first time in more than four years in early August.
“We’re going to cut quarterly from here. We don’t think they’re going to change next week, with a 7-2 vote,” Ruben Segura Cayuela, head of European economics at Bank of America, told CNBC’s “Squawk Box Europe” on Friday.
He added that the BOE’s next rate cut could come in November.
South Africa, Norway and Japan
The South African Reserve Bank is expected to cut interest rates on Thursday, economists say. surveyed by Reuters. The move would mark the first time the central bank has done so since responding to the coronavirus pandemic four years ago.
Norges Bank is set to hold its next meeting on Thursday. Norway’s central bank left interest rates unchanged at a 16-year high of 4.5% in mid-August and speak at a time when policy rates are “likely to remain at that level for some time to come”.
Meanwhile, the Bank of Japan is not expected to raise interest rates later in the week, despite a majority of economists polled by Reuters expected to increase by year end.
