The News
Stocks mostly rose on Monday ahead of what’s expected to be a week of major interest rate decisions from three of the world’s biggest banks: the US Federal Reserve, the Bank of Japan, and the Bank of England.
Market analysts widely expect the Fed to leave rates unchanged after it meets on Tuesday and Wednesday, but it could indicate a quarter-point rate cut at its next meeting in September. The European Central Bank had also left its rates unchanged at its meeting earlier this month.
The Bank of Japan, also meeting Wednesday, is an outlier among major economies in that it is expected to hike interest rates as part of a plan to encourage moderate inflation and combat stagnation.
The Bank of England is expected to slightly ease rates on Thursday, analysts said, though the bank’s Monetary Policy Committee has wavered on the issue.
SIGNALS
The US wants ‘truly cool’ inflation before it cuts rates
After months of recession warnings, the Fed is still expected to hold off on cutting interest rates until September, according to The Wall Street Journal. “Officials have been surprised by inflation in the past and want more evidence it is truly cooling before crossing the rate-cut threshold,” the Journal wrote. This caution stems from the idea that a rate reduction wouldn’t come alone, but rather be part of a series of additional cuts in the following months. But there is some concern that waiting another three months could backfire and potentially tip the US into recession.
The rate hike heard around the world
While many countries are debating when to lower borrowing costs, Japan is expected to discuss raising rates at Wednesday’s meeting. Analysts are split on whether a hike from Japan will happen this week, The New York Times reported. But a rate increase in Japan alongside a decrease in the US could move money out of the US and put pressure on both stock markets, the Times wrote. Japan’s past decision to keep its rates low after the pandemic stemmed from a desire to counter decades of weak growth. It hoped higher prices would translate to wage increases and more spending money, but instead, consumers made fewer purchases and the yen’s value plunged.
Bank of England decision relies on services inflation
The Bank of England will consider its first rate cut since 2020 this week, with all eyes on so-called services inflation — this is a type of inflation that impacts education, hospitals, and other essential services, the Financial Times reported. The metric has repeatedly surpassed the Bank’s expectations, which has spurred warnings from analysts. “The data doesn’t provide clear signals that inflation persistence is beaten,” Bank of America’s Merrill Lynch economist Sonali Punhani told the Financial Times. JPMorgan’s Allan Monks estimated that if the Bank decides to cut rates, it would happen on a 5-4 vote. “A cut would feel like it’s coming despite, rather than because of, data developments since May,” he said.