This week is a blockbuster one for central banks, with the Federal Reserve (Fed), the Bank of England (BoE), and the Bank of Japan (BoJ) all set to announce interest rate decisions, one after another. The Fed has kept borrowing costs at a two-decade high for eight meetings in a row, but it’s widely expected to deliver its first rate cut in over four years on Wednesday. That comes as inflation in the US edges closer to its 2% target and the country’s labor market starts to show signs of weakness. Case in point: recent data showed that the pace of hiring over the past three months slowed to its lowest level since the early days of the pandemic. The big question facing Fed policymakers now is whether a modest, 0.25 percentage point cut will be enough to stave off further damage to the labor market. While traders see a trim of that size as virtually certain this week, some are betting on a cut that’s twice as deep. And it’s not hard to understand their thinking. The Fed, after all, was widely criticized for moving too slowly to hike rates when the economy faced its worst bout of inflation in 40 years. And if it doesn’t respond swiftly to the faltering labor market, it could risk a further increase in the unemployment rate and a potential recession. When it comes to the BoE and BoJ, traders widely expect both to stay put this week. Britain’s central bank lowered its key rate in a knife-edge vote in August, but it was quick to stipulate that the cut was not the start of a series. In contrast, the BoJ has been the only major central bank hiking interest rates, having done so twice this year. The latest one, a surprise move, sent shockwaves through financial markets. So the Bank is likely in no rush to rock that boat again. |
