Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
Fed still coy about QT end-game FOMC minutes put focus on inflation data The minutes of the mid-December FOMC meeting did not dissuade us that the Fed will start to cut interest rates from this March onwards. Admittedly, officials warned that “they would …
5th January 2024
A cooling economy will give the RBA cover Earlier this week, the Australian Financial Review published its quarterly survey of economists. By and large, the perception amongst forecasters seems to be that the RBA will retain its hawkish bias for the …
The redirecting of trade ships away from the Red Sea and the associated rise in shipping costs are unlikely to lead to a resurgence in global inflation. However, if the warfare underpinning the disruption to shipping escalates into a wider regional …
4th January 2024
The run of softer-than-expected news on CPI inflation and wage growth means we now expect the Bank of England to cut interest rates sooner than before. Our forecast is that rates will be cut from 5.25% in June and will fall to 3.00% in 2025. The markets …
Minutes more nuanced than expected, given post-FOMC hawkish chatter The minutes of the mid-December FOMC meeting were slightly more dovish that we were expecting – more in line with the message delivered by Fed Chair Jerome Powell in his press conference …
3rd January 2024
In a change to our previous forecast, we now think that the first interest rate cut from the Bank of England will happen in June this year rather than in November. We still think that interest rates will be reduced from 5.25% now to 3.00% in 2025. That’s …
Will inflation continue its retreat into 2024? When will the Fed start easing policy, and by how much will it cut rates over the coming year? Our US team held an online briefing on the December CPI release and the outlook for inflation and Fed …
2nd January 2024
Canada Chart Pack (Dec. 2023) …
28th December 2023
This week saw a renewed attempt from some Fed officials to push back against market expectations for interest rate cuts but, with core PCE inflation running at an annualised pace of below 2% over the past six months, this final flurry of hawkishness isn’t …
22nd December 2023
Policy rate hike in January now looking unlikely It came as a surprise to no one that the Bank of Japan left policy settings unchanged at this week’s meeting . Even so, yields on 10-year JGBs plunged by nearly 10bp since then, whereas 10-year Treasury …
House prices will limp along in 2024 Although house prices in Melbourne have started to fall anew, we doubt that they are the canary in the coal mine. A persistent shortfall in housing supply should ensure that house prices across most of Australia keep …
21st December 2023
Investors’ growing expectations that the US Fed will cut interest rates in March next year, as well as the recent soft UK wage and inflation data, have convinced investors that the Bank of England will start cutting interest rates sooner, in May 2024 …
19th December 2023
As core PCE inflation is on track to return to the 2% target by the middle of next year, we expect the Fed to cut interest rates by 25bp at every meeting next year from March onwards, with rates eventually falling to between 3.00% and 3.25% in early 2025. …
The Bank of Japan left policy settings unchanged today as widely anticipated. And while Governor Ueda is sounding more confident that 2% inflation will be sustained, we now expect the Bank of Japan to end negative interest rates in March rather than in …
Bank of Japan will end negative rates next month The Bank of Japan left policy settings unchanged today as widely anticipated but we still expect policymakers to end negative rates in January and to phase out Yield Curve Control later in 2024. The Bank’s …
RBA will soon turn dovish The minutes of the RBA’s December meeting reinforce our view that the Bank will be shifting to rate cuts before long. As it has done at virtually every meeting this year, the Board discussed the option of a 25bp rate hike …
There is considerable uncertainty surrounding our forecast that GDP will increase by 1.2% next year, but we have a relatively high conviction in our call that core PCE inflation will be very close to the 2% target by mid-2024. Nevertheless, even small …
18th December 2023
We recently held an online Drop-In session to discuss the December policy meetings and the outlook for monetary policy in the year ahead. (See a recording here .) This Update answers several of the questions that we received. Would the Fed ease policy …
Fed & markets catching up with inflation reality The Fed’s embrace of interest rate cuts next year is understandable when the latest data suggest that core PCE inflation is rapidly closing in on the 2% target. The plunge in expectations in the aftermath …
15th December 2023
If the main objective this week of the Bank of England’s Monetary Policy Committee (MPC) was to keep interest rates unchanged at 5.25% and avoid fuelling even more bets on rate cuts, then it looks like a case of mission accomplished. Even so, the Bank’s …
We think that global growth will undershoot consensus expectations in 2024 as the lagged effects of monetary policy tightening filter through. Among the advanced economies, the US will continue to outperform Europe. And while China’s policy-induced …
Services sector running red-hot The strong Q4 Tankan released this week adds to the case for the Bank of Japan to abandon ultra-loose monetary policy. Of particular importance is that the Tankan shows mounting signs of overheating in the services …
Few signs Bank of England is starting to contemplate rate cuts The Bank of England sprung no surprises, leaving interest rates at 5.25% for the third time in a row and pushing back against the prospect of near-term interest rate cuts. While the recent …
14th December 2023
GDP growth should rebound modestly in the fourth quarter but we expect it will remain soft in 2024. Meanwhile, weak job openings data suggests the labour market should loosen slightly in the short term. However, there are mounting signs that a virtuous …
The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon – to prevent a run-up in real rates – was predictable enough based on its intransigence ahead of previous turning points in the policy cycle. We continue to expect …
13th December 2023
Stubborn Fed demonstrates the SEP’s shortcomings The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon – to prevent a run-up in real rates – was predictable enough based on its intransigence ahead of previous turning …
Overview – We suspect that both economies will narrowly avoid a recession but a prolonged period of below-trend growth will reduce price pressures and allow central banks to ease monetary policy again. We’ve pencilled in rate cuts in Australia in Q2 and …
Inflation is slowing and domestic demand is weakening However, price pressures are increasingly broad-based and wage growth is accelerating Bank’s leadership signalling that end of negative rates isn’t far off The Bank of Japan is increasingly keen to …
12th December 2023
We doubt that the removal of the RBNZ’s employment objective would make much difference to economic outcomes, but forcing the Bank to achieve its inflation target within too short a period of time could cause unnecessary swings in output when inflation is …
11th December 2023
The same questions kept coming up in our client briefings on the 2024 outlook and Group Chief Economist Neil Shearing tackles them in this latest episode of our weekly podcast. He talks about why economic resilience will be increasingly tested and which …
8th December 2023
Markets call the Fed’s bluff on higher for longer Markets abandon higher for longer The Fed may not be quite ready to abandon its tightening bias at this week’s FOMC meeting, but the markets are no longer buying its “higher for longer” mantra. Markets …
The Bank of Canada this week reiterated that strong immigration is putting upward pressure on inflation because housing supply is failing to keep up. Yet the Bank surely can’t be oblivious to the negative impact of high interest rates on construction. …
The further drop in UK market interest rate expectations this week means that investors now think the first interest rate cut will happen in June next year instead of August. And investors are now pricing in an 80% chance of a cut by May. That has led to …
Services inflation continues to accelerate The economic data released this week seem to vindicate the Bank of Japan’s caution when it comes to abandoning ultra-loose monetary policy. For a start, the timely Tokyo CPI showed that inflation slowed from …
Not higher, not longer Earlier today, the Treasury and the RBA published an updated Statement on the Conduct of Monetary Policy. The revised statement clarified that the RBA’s objective is to return inflation to the mid-point of its 2-3% target. That led …
Overview – Further declines in GDP in the coming quarters mean that the economy is unlikely to grow at all next year. Weak growth and a return in inflation to the 2% target will leave scope for the Bank of Canada to cut interest rates sharply, with the …
7th December 2023
Bank of England to keep interest rates unchanged at 5.25% but retain its hawkish bias It won’t risk fuelling bets on earlier rate cuts by watering down its forward guidance We expect Bank Rate to be cut later, but by more than most expect With the Bank …
The economic influence of elections is often overstated. They have only tended to have significant effects if governments have embarked on big structural reforms, interfered with monetary policy or changed their geopolitical stance. Even then, the …
Even though we expect the economy to be weaker than the consensus in 2024, we think that lingering constraints on domestic supply will prevent wage growth and services CPI inflation from falling quite as fast as is widely expected. As a result, we think …
We think that sovereign bond yields in most major economies will generally reach their troughs around the same time over the next year or so. But with the Bank of Japan seemingly set to buck the trend once again, yields there may be an exception. The …
6th December 2023
The Bank of Canada is clinging on to the idea that restrictive policy is still needed to get inflation back to 2%. Nonetheless, with core inflation pressures muted, GDP and house prices falling, and labour market conditions loosening rapidly, it won’t be …
Overview – As core inflation is on track to return to the 2% target by the middle of next year, we expect the Fed to cut interest rates by 25bp at every meeting next year from March onwards, with rates eventually falling to between 3.00% and 3.25% in …
Bank maintains tightening bias, but next move likely to be a cut The policy statement from the Bank of Canada was a bit more hawkish than we expected, with the Bank reiterating that it is still concerned about the outlook for inflation and “remains …
Officials not yet willing to fully endorse rate cut bets; tightening bias could be retained New SEP should confirm rates are at the peak but significant downgrades unlikely We expect the first rate cut in March and 175bp of easing in total next year With …
