All Eyes On Fed And BoE Rate Decisions

Two of the world’s biggest central banks, the US Federal Reserve (Fed) and the Bank of England (BoE) will announce their interest rate decisions today and tomorrow, respectively. While both banks are likely to keep their borrowing costs on hold, economists will be focusing on the post-meeting statement narrative as future rate cuts seem that won’t take place as quickly as initially anticipated.

 Australia’s fourth quarter 2023 inflation rate decelerated to 4.1%, lower than the 4.3% figure expected by economists. In other news, Alphabet’s shares dropped by 6% in after-hours trade as ad revenue in the fourth quarter disappointed analysts.

Fed Interest Rate Decision

It is no secret that investors and traders are focused on the Federal Open Market Committee (FOMC) rate decision due later in the evening. The majority of economists suggest that the FOMC will keep rates on hold this time as it evaluates the effect of the strict monetary policy implemented during last year. The CME Fed Watch tool seems to agree as 97% of respondents do not forecast a rate cut, although things were different in December as one out of five had been expecting some policy easing.

ING analysts expect the post-meeting statement to shift to neutral, pushing back any potential rate move. In their report they note that “we believe the Fed will choose to wait until May to make the first move, with ongoing subdued core inflation measures giving it the confidence to cut the policy rate down to 4% by the end of this year versus the 4.5% consensus forecast, and 3% by mid-2025. This will merely get us close to neutral territory. If the economy does enter a more troubled period and the Fed needs to move into 'stimulative' territory there is scope for much deeper cuts.”

Bank of England Rate Decision

The Monetary Policy Committee of the Bank of England is expected to announce its interest rate decision on Thursday afternoon. Market analysts don’t expect the BoE’s board to proceed with any change in monetary policy. The last time that the BoE adjusted borrowing costs was in August 2023. Ever since then, CPI inflation felt closer to the bank’s target but still has not reached the targeted level.  

BoE policymakers have said rate cuts at the current stage would be “premature” as they could lead to a rebound in price pressures. Commenting on the upcoming rate decision, market strategists at Vanguard said: “Given the large undershoot to the inflation forecast in recent months, we expect the tightening bias to be dropped and instead anticipate monetary policy committee members will lay the groundwork for rate cuts in the middle of the year. Starting to cut as early as the Spring seems too early in our view, given the persistence of core/services prices.”

US Nonfarm Payrolls January 2024

Two days after the Fed’s monetary policy decision, the US Bureau of Labour Statistics (BLS) will release the Nonfarm Payrolls report for January 2024. Economists expect the figure to come in at 180,000, lower than December’s 216,000 number.

It should be noted that the December NFP report surprised analysts as the figure was higher than anticipated so one more surprise in January could strengthen the scenario saying that the Fed could delay rate cuts.

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