Heavyweight Interest Rate Decisions Amid Recession Fears

Markets are anticipating interest rate decisions from heavyweight central banks this week amid global recession fears. The Federal Reserve, Bank of England (BoE) and the European Central Bank (ECB) will release their decisions and insights into monetary policy on Wednesday and Thursday.

The Fed Interest Rate Decision is out tomorrow, and the consensus opinion sees a rate hike from the current level of 4 percent to 4.5 percent. Will the decision reflect the consensus view? Recently, the Fed’s rhetoric has been less hawkish, not more dovish, as many market participants hope. The central bank remains determined to overtake inflation, yet the time to ease back on the interest rate throttle could be this month if the Fed’s Chairman Jerome Powell’s latest signals materialize.

A note of caution: there is still a chance of a higher interest rate hike, meaning that investors and traders would be wise to consider both scenarios.

The December FOMC meeting is significant because of monetary policy and the Economic Projections report. This release includes changes in gross domestic product (GDP), inflation rate projections and unemployment. The jobs market is a particularly hot button issue, having been one of the bright spots of the post-pandemic US economy. If the FOMC forecasts a vulnerable labour sector in early 2023, market participants might react because higher unemployment is one of the main markers of economic weakness.

In the UK, the claimant count for November disappointed expectations, coming in at 30.5K versus the consensus of 3.5K and previous level of minus 6.4K in October. It was the biggest increase in unemployment benefits claims since February 2021, and the development comes just before the BoE’s Interest Rate Decision on Thursday.

The BoE is expected to hike its key interest rate guidance from 3 percent to 3.5 percent against the background of high inflation that reached 11.1 percent in October. A more hawkish decision could exaggerate recession fears and result in higher unemployment. As in the US case, higher unemployment points to weaker overall growth, a trend that would make the inflated cost of living a bigger weight on consumers and the state because of the increase in fiscal support for the unemployed.

Now to the ECB’s decision on Thursday. Europe’s central bank is expected to increase its key interest rate policy from 2 percent currently to 2.5 percent in a balancing act between controlling high inflation and supporting economic growth. Any surprises in the ECB’s monetary policy could trigger a reaction such as volatility in the currency and stock markets.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.