The Federal Reserve Leads Global Central Bank Super Week, Market Focuses on Key Decisions
This week, global financial markets are witnessing an extraordinary gathering of central banks, with as many as 25 central banks holding policy meetings in just one week, representing about two-fifths of the global economy. As the last "central bank super week" of 2024, this series of meetings will undoubtedly attract substantial attention from investors. The forex and commodities markets are expected to experience waves of volatility in response to key decisions.
The Federal Reserve is undeniably the focal point of this week's meetings, anticipated to make its third rate cut of the year. According to interest rate futures market data, there is a 93% probability that the Fed will cut rates by 25 basis points at its December 17-18 meeting. However, recent strong U.S. economic data introduces uncertainty, potentially causing the Fed to pause rate cuts in early 2025. Jerome Powell's remarks in the post-meeting press conference and the release of the latest interest rate dot plot will be the most concerning events for the market this week.
G10 Central Banks: A Mix of Rate Cuts and Wait-and-See
Outside the Fed, the Swedish Riksbank is another G10 central bank in the spotlight. Most economists expect the Riksbank to cut rates by 25 basis points this week, a more gradual step following last month's 50 basis point cut. Despite a recent rebound in Sweden's core inflation to a six-month high, this seems insufficient to halt the rate-cutting momentum.
The Bank of England is expected to hold steady, maintaining a cautious pace of easing. Swap markets show that the BOE is almost certain to keep rates unchanged in its last meeting of the year, making the pound the strongest-performing G10 currency against the dollar this year. Furthermore, Norway's central bank is also expected to keep rates unchanged at 4.5%, despite a rise in domestic core inflation.
Among other European central banks, the Hungarian and Czech central banks are also expected to keep rates unchanged this week. The Hungarian central bank may delay easing due to accelerating inflation and a near-low forint, while policy makers at the Czech central bank are considering whether to halt the current easing policy.
Emerging Market Central Banks: Continuing the Rate Cut Trend
In the emerging markets, several central banks are expected to continue with rate cuts. The State Bank of Pakistan might begin a rate-cutting cycle this week, owing to a significant decline in inflation. The central banks of Indonesia and the Philippines are also expected to cut rates by 25 basis points each to further stimulate economic growth.
However, exceptions exist. The Central Bank of Brazil has been persistently raising rates, while other Latin American countries continue their easing policies. Russia's central bank, under pressure from inflation and a depreciating ruble, is expected to raise rates by 200 basis points to 23% this week, setting a historic high.
Focus on the Tightening Camp: Japan and Russia
Despite the clear global easing trend, the Bank of Japan and the Russian central bank are the focus within the tightening camp. The market widely expects the BOJ to hold steady this week, though further tightening in early 2024 cannot be ruled out. In contrast, under pressure from a depreciating ruble, Russia's central bank may continue raising rates this week to curb consumer price inflation above target.
Core Topics Investors Need to Watch
During this "central bank super week," investors should focus on the following key topics: the Fed's interest rate dot plot indicating the pace of rate cuts for 2025; the rate-cutting paths of Sweden and emerging market central banks; and the tightening actions of Japan and Russia. Additionally, how central banks like those of the UK and Norway will balance economic pressure with inflation risks will also influence future policy expectations.
With 25 central banks meeting this week, the market faces a year-end policy storm. The Fed's "triple rate cut" expectations, geopolitical factors, and inflation data will be core variables affecting market trends. Meanwhile, the easing trend in emerging markets and sporadic tightening actions by some central banks compose the main highlights of this "super week."
