All eyes were on Fed Chair Powell this past week. Clearly, he was determined to hold a balanced line Wednesday. Perhaps balancing to the more dovish contingent on the board, perhaps a realization that the US housing market is tittering and putting the whole game at risk. This week we have speeches by ECB policymakers ahead of the last meeting of the year a week later, President Lagarde on Monday and Thursday. The Fed goes into communications blackout on December 10th. Rate setters include India’s RBI, Australia’s RBA, Central Bank of Brazil and Poland’s’ central bank.
Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.
Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.
To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.
Weekly Recap and Outlook
The big story this week was Fed chair’s Powell speech at the Brooking institute. Fed Chair Powell at the Brooking Institute on Wednesday not being uber hawkish, especially compared to his November 2nd press conference sent stock and bonds soaring, clearly catching many bears short. Recall back at that November presser the S&P500 sank about 5% between the start of his press conference and the following day’s market open.
Perhaps a tilt to his dovish vice chair “monetary policy works with long and variable lags.” “I don’t want to overtighten. My colleagues and I do not want to overtighten…” Compared to the hawkish Powell, from his November FOMC press conference, “if we over tighten, then we have the ability with our tools, which are powerful, to… support economic activity strongly.”
We can probably assume Powell was uncomfortable that his comments at the FOMC Q&A had such a market impact, or he is just being forthright in his adjustment to events. Regardless, what he did say was on Wednesday was “So, we have a risk management balance to strike, and we think that slowing down at this point is a good way to balance the risks of over tightening.”
More Central Bank News of Note This Week:
Central Bank Week Ahead:
The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later, President Lagarde on Monday and Thursday. The Fed goes into communications blackout on December 10th.
The RBI could potentially bring its tightening cycle to a close Wednesday with a final 35 basis point hike, taking the repo rate to 6.25%.
The RBA began to weaken their hawkish stance in the past two months, raising rates by just 25 basis points each time to bring the official rate to 2.85%. The market is currently expecting a 25-basis point rate hike next week.
FOMC blackout period for members ahead of the Federal Reserve meeting scheduled for December 13-14.
Sunday, Dec. 4
- 20:45 ECB President Lagarde gives a keynote speech on “Transition Towards a Greener Economy: Challenges and Solutions”
Monday, Dec. 5
- 06:30 RBI MPC Meeting Minutes
- 12:00 German Buba Wuermeling Speaks
- 05:00 ECB’s Villeroy speaks at a conference of French banking and finance supervisor ACPR in Paris
- 05:00 ECB’s Makhlouf speaks in Dublin EU finance ministers meet in Brussels
- 22:30 Australian Central Bank (RBA) Interest Rate Decision and Statement. Expected to raise Cash Rate Target by 25bps to 3.10%
Tuesday, Dec. 6
- 05:10 ECB’s Supervisory Board Member Jochnick Speaks
- 19:30 RBA Chart Pack Release
- 20:30 BoJ Board Member Nakamura Speaks
- 23:30 India central bank (RBI) rate decision: Expected to raise rates by 25 bps to 6.15%
Wednesday, Dec. 7
- Poland central bank rate decision: Expected to keep rates steady at 6.75
- 02:10 ECB’s Lane Speaks
- 06:30 RBI MPC Meeting Minutes
- 07:00 ECB McCaul Speaks
- 09:30 ECB’s Panetta Speaks
- 10:00 Canada Central Bank (BoC) Rate Statement and Interest Rate Decision: Expected to raise rates by 25bps to 4.00%
- 16:00 Brazil Central Bank Interest Rate Decision
- 19:30 RBA Bulletin
Thursday, Dec. 8
- 07:00 ECB President Lagarde at the European Systemic Risk Board’s sixth annual conference
- ECB’s Villeroy speaks at the Toulouse School of Economics
- 09:30 SNB Gov Board Member Maechler participates in a panel discussion
- 12:45 CAD BoC Deputy Gov Kozicki Speaks
- 13:00 ECB President Lagarde Speaks
Friday, Dec. 9
- 2:45 ECB’s Enria Speaks
- FOMC blackout period for members ahead of the Federal Reserve meeting scheduled for December 13-14.
The Fed with a Strong US Dollar
The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.
The survey of 40 economists was conducted Oct. 21-26.
- 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
- 38% said the policy makers would be forced to cut rates earlier than expected and
- 18% said the Fed would not be able to raise rates as much as planned.
- Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.
The Fed as expected raised another 75 basis-points last meeting. Their last forecast showed rates reaching 4.4% by year end from a current target range of 3% to 3.25% and to 4.6% in 2023. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.
“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”
Anna Wong (Bloomberg chief US economist)
Key Central Bank Decisions, Reports
- Federal Reserve Beige Book Highlights Higher Interest Rates Further Dented Home Sales
- NY Fed Williams Expects US Jobless Rate to Rise from 3.7% to 4.5-5.0%
- Turkey Central Bank Cuts Interest Rates Another 150bp Ending Easing Cycle
- Sweden’s Riksbank Raise Rates by 75 bps to the Highest Level Since December 2008
- South Africa Raises Interest Rates 75bps to Tame Inflation
- Bank of Korea Raises Rates To 3.25%, Highest level Since June 2012
- Reserve Bank of New Zealand Raise Rates by 75bp to 4.25% to Highest Since January 2009
- Appreciation of Swiss Franc Guards Against Inflation says SNBs Jordan
- Fed Vice Chair Brainard says Slower Pace of Rate Increases Probably Soon
- Bank of England Raises Interest Rates 75bps to 3% in Biggest Rise in 30 Years
- Norway Raised Interest Rate by 25bps, Norwegian Crown Fell Against Euro
- Markets Reverse Sharply on Feds Powell Statements, What Does it all Mean?
- RBA Raises Rates to Nine Year High 2.85%
- Federal Reserve Again Raises Rates 75bps as Expected, Hints at Possibly Smaller Hikes
- Japan Spent ¥6.35 trillion in October on Intervention to Support the Yen
- ECB Raises Rates Another 75 bps as Expected TLTRO Terms and Conditions Recalibrated
- Bank of Canada Raises Rates 50 Basis Point to Highest Level Since 2008
- Bank Indonesia Raised Rates by Another 50 basis points to 4.75% to Tame Inflation
- Federal Reserve Beige Book Highlights Employment Strength as Price Increases Generally Moderate
- RBA says Financial Stability Risks Have Increased Globally
- Banco de México Raised Rates for 11th Straight Time to Record 9.25%
- Ahead of RBI Meeting S&P says Indian Inflation Likely Above RBI’s 2022 Upper Tolerance Limit
- Cable Pounded Again After Indecisive Bank of England Statement
- Japan Intervened to Support Yen for First Time Since 1998 After BOJ Decision
- Swiss National Bank Raises Policy Rate by 75 bps to 0.50%, Swiss Franc Falls sharply
- Philippines Central Bank Raised Rates by 50 basis points to 4.25%, Moves to Support Peso
- Bank of Japan Monetary Policy Unchanged Sending Yen to a Fresh 24-Year Low
- Brazil Central Bank Pauses Rates at 13.75%, after Inflation Eased Below 10%
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From The TradersCommunity Research Desk