(Bloomberg) — Federal Reserve officials face their biggest challenge in months as they consider whether to continue raising interest rates this week to tame inflation or a fallout from recent bank failures. Take a break from inspired market volatility.
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Prior to the collapse of the Silicon Valley bank and resulting fallout, Fed policymakers prepared to hike rates by 50 basis points after a string of data suggested that officials at the beginning of the year thought the economy Was very strong.
Now, given the volatility of the financial markets, many Fed watchers expect a smaller, quarter-point hike, and some say the US central bank may be fully on course after its two-day meeting starting Tuesday. Will stop
The decision follows a 50-basis-point rate hike from the European Central Bank on Thursday. President Christine Lagarde said the ECB was committed to fighting inflation while closely monitoring bank tensions.
Also highly anticipated from the Fed meeting with an update of the economic projections summary — a quarterly report in which participants forecast for everything from inflation to interest rates — and Chairman Jerome Powell's post-meeting press conference.
Amid banking sector turmoil, Powell could face questions over central bank oversight of SVB and other struggling entities.
They will also need to tread carefully when talking about the possible future path of interest rates. Before the banking issue emerged, Fed officials had indicated that rates would need to be raised above 5% this year and remain there until inflation is on pace to fall back to its 2% target.
Yet heightened uncertainty over the extent to which bank capitalization issues — the Fed's rapid interest rate hikes and effects on Treasury yields — will affect the broader economy could limit Powell's ability to tighten further further. Is.
What Bloomberg Economics Says…
“On March 22 the FOMC faces its most challenging policy decision in recent memory. Market expectations have changed sharply – from a 50-basis-point hike to a pause – as fears of a bank contagion outweigh inflation concerns. We expect the Fed to hike by 25 basis points, taking the upper range to 4.75% to 5%. Inflation maintains pressure to continue rising sharply.
– Anna Wong, prominent US economist. For full analysis, click here
Elsewhere, 12 other central banks set policy in the coming week. Economists predict rate hikes in the UK, Switzerland, Norway, Nigeria and the Philippines, while Brazil and Turkey will probably hold off. Meanwhile, traders betting on the Bank of Canada's rate path will get a fresh inflation reading.
Click here for what happened last week and below for details on what's happening in the global economy.
On Monday, the People's Bank of China will report that banks left their key lending rates unchanged as the economy slowly recovers.
In Tokyo, a summary of opinions from the Bank of Japan meeting earlier this month will shed more light on the rationale for holding monetary policy steady ahead of Kazuo Ueda's arrival in April.
Reserve Bank of Australia official Chris Kent is expected to provide an update on Monday on the policy stance and any concerns over financial market contagion. Those comments will likely prove more timely than the minutes from the RBA's March meeting on Tuesday.
Early trading numbers from South Korea will offer a pulse check on global conditions.
Japan's inflation data on Friday is set to reflect earlier data that pointed to easing prices, largely helped by new subsidized electricity bills.
The central banks of Hong Kong and Taiwan will announce their interest rates on Thursday.
Europe, Middle East, Africa
The Fed may be the central bank's major decision this week, but several others will also grab investors' attention.
The Bank of England takes center stage in Europe. Officials await the latest UK inflation reading on Wednesday, with possible price increases still close to double digits. Most economists expect rates to rise by a quarter point the next day, although with financial tensions still simmering, a minority see no change.
Here's a quick rundown of the other decisions:
The Swiss National Bank's meeting on Thursday is quarterly and has a go-ahead, so a 50 basis point hike is widely expected. The fallout shadowed Credit Suisse Group AG, the beleaguered bank offered a lifeline to help stave off global turmoil.
That same day in Norway, where officials are forecast to raise rates by another quarter point in a bid to extend the cycle of monetary tightening in the oil-rich economy.
An Icelandic decision is due on Wednesday, with another big rate hike possible.
If you look towards the south, the central banks will also be very active. Here's a quick summary:
Nigeria may raise rates on Tuesday to control inflation that is near an 18-year high, and to encourage investment.
On the same day in Angola, authorities may cut benchmark borrowing costs for the second time this year as the kwanza remains stable, commodity prices remain subdued, and price increases are likely to continue to slide.
On that day in Morocco, the central bank will clamp down on monetary tightening as food prices begin to drop.
And in Turkey on Thursday, officials are expected to hold rates steady. Any indication of future policy will be important as the country heads to elections in May where President Recep Tayyip Erdogan faces his strongest challenge to his two decades in power.
After the ECB's meeting on Thursday, which ended with a half-pint hike but no guidance for the future, more than a dozen of its policymakers will speak in the coming days. President Lagarde is likely to attract the most attention on Monday with her testimony to the European Parliament.
Further clues on the background of the banking system could be available when his ECB colleague Andrea Enria, the euro zone's top regulator, speaks to the same panel of lawmakers the next day.
Lagarde is also among officials who will take the stage at the ECB and its watchers' conference in Frankfurt on Wednesday, and several others are scheduled to appear elsewhere during the week.
Meanwhile, purchasing managers' indices in the euro area and the UK will indicate industry strength as China reopens, and the German Council of Economic Experts publishes an updated growth outlook.
A busy week in Brazil begins with the central bank's survey of market expectations on inflation, which continues to slide ahead of its 2025 target.
The Banco Central do Brasil is set to keep its key rate at 13.75% for a fifth consecutive meeting, although policymakers may take a softer stance in a post-decision statement.
After minimal deflation in the last three mid-month consumer price readings, analysts see a sharp decline due to base-effects for the mid-February print and in the second quarter before a rise in the second half.
Chile's fourth-quarter output report may show the Andean country avoided falling into a technical recession thanks to domestic liquidity and the impact of China's reopening.
In Argentina, four straight negative readings on its monthly economic activity indicator point to a quarterly contraction in output heading into a challenging 2023.
In Mexico, the weakness seen in retail sales since May could extend into January, while a drop in demand from the US, the country's biggest export market, is expected from January GDP-proxy data.
Initial consensus has mid-month inflation coming close to a one-year low – though still more than double the 3% target – while the somewhat more sticky core reading is down from November's two-decade high of 8.66%, In line with Banxico's prediction.
– With assistance from Robert Jameson, Malcolm Scott, Sylvia Vestal and Stephen Vicari.
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