Fed e Bce waiting at the gates of the marketsbut also Bank of England (BoE), SNB (Swiss National Bank) and Norges Bank, the central bank of Norway.
There are five the central banks who will make their big rate announcements during the week that has just opened: the last announcements for 2022, in view of a 2023 that sees the world economy risking recession.
The ING Economics economists they have already taken action, like many others, to churn out their rate forecasts.
In the case of the Fed and the ECB, the key number is ’50’: the monetary tightening launched by the two central banks should in fact both be 50 basis points, therefore of a lower entity than the previous increases of 75 basis points.
Jerome Powell’s Fed is fresh from four consecutive 75 basis point squeezes, which have brought the cost of US money to the top since 2008, between 3.75% and 4%.
Christine Lagarde’s ECB announced on 27 October a new maxi rate hike of +75 basis points, after the historic one, the first of that intensity since the birth of the euro, on 8 September last.
In particular, as a result of the European Central Bank’s move, interest rates on the main refinancing operations, the marginal lending facility and the deposit facility will be raised respectively al 2,00%, al 2,25% and all’1,50%.
Market expectations are for a new rate hike by Lagarde & Co., at the upcoming meeting in Thursday 15 December, by at least 50 basis points, after the tightening which led rates (on deposits) to rise from -0.50% in June to 1.5% in October.
ING: outlook tassi Fed
“After 375 basis points of rate hikes Since March, including four consecutive 75 basis point tightenings, the Federal Reserve has come to the conclusion that it is time to proceed with smaller hikes..
The reference is to the speech that was made a few days ago Brookings Institution from Fed Chairman Jerome Powell:
“It makes sense to moderate the pace of interest rate hikes,” said Powell, uttering the magic phrase that markets around the world expected to hear: the intensity of the Federal Reserve’s monetary tightening, the US central bank helmsman admitted, “it could be moderated as early as the next FOMC meeting (the monetary policy arm of the Federal Reserve)”, or the one that is scheduled for tomorrow and the day after, 13 and 14 December.
However, it must be said that the central banker had previously warned that fed funds rates would probably go up to 5% if not beyond, in order to defeat the scourge of inflation. And that from many sides, starting from Elon Musk up to Peter Schiff, Chief Economist & Global Strategist of Europa.com and founder of SchiffGold.com, had launched several alert crash .
In this context ING also wrote that “The market doubts that the Fed’s target and the recent drop in Treasury and dollar rates are jeopardizing the Fed’s determination to beat inflation. Indeed, officials continue to try to convince the market that the terminal rate will be higher than the value indicated in September, but the markets are turning a deaf ear focusing on the data signaling a slowdown in inflation and the feeling that the recession is around the corner”.
A misunderstanding? The risk is there.
“Although we agree that in the second half of 2023 there will be rate cuts, we also believe there is a risk of a more aggressive response to inflation in the near term, with room for upside from our forecasts of 50 basis point hikes in the December and February meetings. We could also see the Fed’s decision to speed up the divestment of assets on its balance sheet, with the aim of steepening the Treasury yield curve at higher levels”.
ING: outlook tassi Bce
What about the ECB instead?
ING pointed out that “Eurozone inflation is near its peakunless energy prices start to rise again next year”. Said this, “The road to reaching the ECB’s 2% target will be long and bumpy.”
The data released recently confirmed that the growth of inflation has actually slowed down, even in the Eurozone, with the consumer price index grew by 10.0% annually in November, compared to 10.6% in October and 10.4% expected by analysts.
However, this is a much higher rate of growth than the ECB’s rate target of 2%.
Also pay attention to the Mazziero Research alert on inflation in Italy.
ING explains that the transfer of wholesale gas pricesas well as still high selling price expectations suggest that inflationary pressures persist and that “it could take until 2024, before inflation returns to 2%”.
“This means that, for the ECB, the job is not finished yet. At the same time, the impending recession, the risk of a weak recovery and the increase in government debts are pushing the ECB closer to the point where rate hikes risk becoming too restrictive. Consequently, we estimate that the ECB will bring the deposit rate to the terminal value of 2.5% in the first quarter of 2023 and that the balance sheet reduction, i.e. the reduction of the ECB’s bond portfolio (including BTPs) could become the main ECB tool to fight inflation”.
The reference is to QT-Quantitative Tightening, the great threat hanging over BTPs in particular and on all the government bonds of those heavily indebted euro area countries.
ING: outlook tassi Bank of England (BoE)
Turning to the Bank of England, ING notes that despite the 75 basis point monetary tightening in November, the central bank “He made it very clear that this was an extraordinary move, and that investors are pricing in excessive rate hikes.”
It must be said, the economists continue, “that the latest data they were mildly hawkishand that the central bank is aware of the risk that inflation in services sector and wage dynamics could decline only gradually, despite the onset of the recession. At the same time, the Chancellor of the Exchequer’s autumn budget has perhaps done enough to reassure the BoE that fiscal policy and monetary policy are heading in the same direction as, even if much of the fiscal beating has been deferred to the next few years, the government has in any case reduced the aid against high energy costs foreseen for families next year”.
Consequentially, “we expect monetary tightening of 50 basis points in both December (this Thursday 15th) that in February, until you get at peak rates of 4%. Furthermore, as labor supply is unlikely to ease next year, with wage growth set to remain higher than in recent recessions, we suspect that the first rate cut by the BoE it won’t show up until 2024, and that it won’t show up until after the Federal Reserve.”