As the calendar year draws to a close, some of the major central banks are preparing for their final Monetary Policy meetings this coming week before breaking over the holidays.
Among those gathering this week are the Fed, Bank of England and the European Central Bank. It’s gratifying to see a global trend of inflation being brought under control recently, which is naturally prompting discussions about the timing of interest rate reductions.
So what insights will be uncovered from these meetings and the deliberations of the board members about the potential for decreased rates in the next year? Will the banks adopt a cautious strategy to suppress inflation and maintain its low levels, or will they endeavour to stimulate the economy as soon as feasible in 2024?
We take a look below at what to expect this week, and what the stats and experts have to say.
Federal Reserve
The Federal Open Market Committee is scheduled to meet this week, with the Decision Statement on interest rates to be delivered at 7:00 PM GMT on Wednesday the 13th, and the Press Conference to follow half an hour later.
In November, officials maintained the fed funds rate target range of 5.25%-5.5%, highlighting their dual priority of avoiding excessive monetary tightening while still attempting to bring inflation to the 2% goal.
New Inflation data is due to be released a day ahead of the FOMC decision. The most recent data showed that the annual inflation rate decreased from 3.7% in August and September to 3.2% in October, which was less than the 3.3% that the market had anticipated. If the forecast is accurate, only a small decline to around 3.1% is anticipated in November so there is still a ways to go yet.
The year over year core inflation rate, excluding volatile commodities like food and energy, decreased from 4.1% in the preceding month to 4%, marking a two-year low. Expectations are that this value will stay consistent over the current month.
According to last Wednesday's ADP National Employment Report, private payrolls increased by just 103,000 jobs last month. In addition, a downward revision to the numbers for October brought the number of new jobs created down from 113,000 to 106,000. The ADP study, which was created in collaboration with the Stanford Digital Economy Lab, was released ahead of this week's publication of the Labour Department's more extensive and much anticipated November employment report. Typically, the Nonfarm Payrolls are reasonably well aligned with the ADP, but forecasts are for a gain of 180,000 jobs this month, up from 150,000 the month prior, which is still quite strong but gradually falling.
The board is expected to again hold rates at its last meeting in 2023, and many expect that rate cuts will start as early as the first quarter of next year.
Bank of England
The Bank of England will meet on Monetary Policy this week, with the Decision Statement due at 12:00 PM GMT on Thursday the 14th.
The Bank retained its benchmark interest rate at 5.25% at its November meeting, a level not seen in 15 years. This came as policymakers analyzed recent signs of a UK economic slowdown and grappled with the issue of stubbornly rising inflation.
The inflation rate in October declined to 4.6%, from 6.7% in September and August, and was also below the 4.8% target set by the market. This is the lowest rate observed since October 2021, partially attributable to the recent decline in energy prices precipitated by Ofgem's choice to reduce the household bill limit. When the new data is due on the 20th December, expectations are for a further decline in the annual rate to around 4%.
On the labour market front, the adjusted Unemployment Rate remained steady from April to June at 4.2% and was in line with market expectations for the three months leading up to September. The forecast for the three months ending in October is for a minor increase, to 4.3%. Average weekly earnings (including bonuses) increased 7.9% year over year during the same period and was the lowest level in four months. Analysts predict a decrease to 6.7% this period.
Additionally, the Employment Change is anticipated to reveal a gain of 50,000 new employment in September, a decrease from 54,000 in August, so on the whole, the employment data shows that conditions are continuing to cool.
Risks remain for another rise in rates for the BoE over the coming months, but rates are generally expected to be held this week once again.
European Central Bank
The European Central Bank will also meet this week to discuss monetary policy, with the Statement scheduled for 1:15 PM GMT on Thursday the 14th, and the Press Conference scheduled to follow at 1:45 PM GMT.
The ECB held interest rates at multi-year high of 4.5% during its October meeting, breaking its 15-month rate-hiking run. This underscores a more cautious stance among policymakers, who are influenced by slowing price pressures and concerns about a possible recession.
According to a preliminary assessment, the inflation rate in the Euro Area fell to 2.4% year over year in November, the lowest level since July 2021, and below the 2.7% market expectation. Released concurrently, the core rate, which does not account for fluctuating energy and food prices, also decreased to 3.6%, the lowest level since April 2022, and below projections of 3.9%. These numbers are due to be confirmed on the 19th of December, but they represent huge progress to price increases which will be gratifying for the ECB.
Meanwhile, the Unemployment Rate has been holding steady for months at 6.5%, and in the three months ending in September, there was just a small rise in the Employment Change, up 0.2% from the previous quarter. So while inflation is down, the labour market has cooled but is still in positive and resilient territory.
The bank is anticipated to keep rates unchanged at its final meeting of the year, but pressure is growing for rate cuts in the early stages of the new year.
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