ECB and Fed Set to Make Crucial Rate Decisions
The European Central Bank (ECB) looks set to hike interest rates by another 50 basis points at its meeting on Thursday, taking the deposit rate to 3.00%.[0] This would be the third straight hike of 50 bps, bringing the total increase since July to 300 basis points in a bid to tame inflation. The path forward may become more complicated as there is a growing split between the hawks and the doves within the Governing Council.[1]
Meanwhile, the Federal Reserve will be closely watching the February inflation report, expected to show a 0.4% month-over-month rise for the Consumer Price Index, with a 5.5% gain from a year ago.[2] The Fed’s own research finds its model to be more accurate in predicting headline inflation than those of other professional forecasters.[2]
The power of the Fed’s open-mouth policy is clear: Chairman Jerome Powell told Congress last week that his agency is “prepared to increase the pace of rate hikes” if the data points to it.[3] If inflation is not moving down toward the bank’s target of 2%, the Fed will continue to tighten its monetary policy.[2]
This week, the US will receive reports on producer prices, housing starts, industrial production for February, and the initial consumer sentiment for March.[4]
A major point of attention in the area will be the European Central Bank's rate decision.[4] It is almost certain that a 0.5% increase will take place, however, investors will be keeping an eye out for clues that indicate its projections for the coming May and beyond, this will be based on the latest quarterly estimates.[4]
The final datapoint to lock in the market’s expectation for the Federal Reserve’s next interest rate move comes on Tuesday.[2] At the start of March, the market anticipated a mere 0.25% increase in the rate by the end of the month.[2] One week after, the CME FedWatch tool predicted the probability of a higher one-half of 1% raise when the Federal Open Market Committee comes together.[3]
At the beginning of this year, conversations around recession seemed to quiet down as a result of a strong GDP report in the fourth quarter, along with an unexpected increase in seasonally-adjusted new jobs in January.[3] However, another strong month of inflation will continue to test the Fed’s resolve and investors’ patience.[2]
At the WAMU public radio station in Washington, D.C., Tom Hudson holds the position of Chief Content Officer.[2]
0. “Week Ahead for FX, Bond Markets: ECB Decision, US Inflation, UK Budget in Focus” Morningstar, 10 Mar. 2023, https://www.morningstar.com/news/dow-jones/202303106652/week-ahead-for-fx-bond-markets-ecb-decision-us-inflation-uk-budget-in-focus
1. “Week Ahead – US inflation, ECB decision to test markets’ nerve” Investing.com, 10 Mar. 2023, https://www.investing.com/analysis/week-ahead–us-inflation-ecb-decision-to-test-markets-nerve-200636097
2. “Keep close eye on February Consumer Price Index to know Fed’s next move on interest rates” AOL, 12 Mar. 2023, https://www.aol.com/news/keep-close-eye-february-consumer-093000201.html
3. “The Week Ahead: As inflation simmers and interest rates rise, investors stew” Brunswick News, 10 Mar. 2023, https://thebrunswicknews.com/news/national_news/the-week-ahead-as-inflation-simmers-and-interest-rates-rise-investors-stew/article_aa9bce6c-3beb-5b19-a257-9f8653034ca5.html
4. “Fed Rate Puzzle Gets Final Inflation, Retail Pieces” Yahoo News, 12 Mar. 2023, https://news.yahoo.com/fed-rate-puzzle-gets-final-210000246.html
