The Federal Reserve and the Bank of England may both unleash 75 basis-point interest-rate hikes in the coming days in a show of aggression toward inflation, even in the face of mounting recession risks.
The transatlantic double act illustrates the trade-off confronting central banks as evidence of an impending global economic contraction becomes harder to ignore, even as inflation lingers.
For the Fed, the fourth such out-sized move on Wednesday will bring it to a crossroads. The damage to growth inflicted by policy tightening is no longer being masked by the buoyancy of the post-pandemic economy, while its success in taming inflation has yet to materialize.
The BOE’s situation on Thursday is even less comfortable as it delivers what would be the biggest UK rate hike since 1989. Not only is the country probably already in a recession, but officials are also trying to reestablish the credibility of the UK’s framework after former Prime Minister Liz Truss’s unfunded fiscal plan led to a disastrous market crisis.
For each central bank, the week’s action is likely to be only a stepping stone toward even higher borrowing costs. Economists surveyed by Bloomberg reckon Fed rates will reach 5% by March, while the BOE may keep raising to settle above 4%.
Then again, recession worries could still temper policy makers’ enthusiasm for forceful hiking. That’s what happened with the Bank of Canada, which hiked rates by a less-than-expected 50 basis points.
See also: ECB delivers landmark rate cut but few signals top
In the US, many economists will look to the labour market for evidence of a deepening slowdown. Nonfarm payrolls due on Friday may show the economy added 190,000 jobs in October, the smallest addition since President Joe Biden’s administration began in January 2021.
Elsewhere this week, a likely slowdown in euro-zone growth, possible rate hikes from Norway to Australia, and a renewed surge in Turkish inflation will keep financial markets busy.
Asia
China releases PMI reports for October on Monday, with a pullback expected.
See also: ECB holds rates and signals cuts are still some way off
Market watchers will closely scrutinize the release of intervention figures out late Monday to see how much Japan spent to prop up the yen in October, as the currency still hovers near 32-year lows.
Australia’s central bank chief Philip Lowe is set to raise rates again on Tuesday as inflation continues to heat up faster than expected by economists. Still, the RBA is more likely to opt for another quarter-percentage point hike, as it factors in concerns over the impact on households and businesses of raising rates too quickly.
South Korea’s export figures will give an early sign of how global commerce fared in October and how seriously the cratering won is widening the country’s trade deficit.
Inflation figures the following day will show if price growth is continuing to cool as the Bank of Korea hikes rates.
Hong Kong will likely follow the Fed in raising borrowing costs, and commercial banks may follow suit by increasing their prime rates for the second time since September -- another blow to consumer and business spending.
Malaysia’s central bank is also expected to raise its key rate for a fourth straight meeting.
