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Will the European Central Bank raise interest rates again?
The European Central Bank will decide whether to raise interest rates at a meeting on Thursday for the first time in more than a year.
In response to the worst inflation surge in a generation, the European Central Bank has raised its benchmark deposit rate to 3.75% from -0.5% last summer and now appears to be approaching the peak of policy tightening.
Investors are increasingly doubtful that the central bank will raise interest rates for a tenth consecutive time amid widespread signs of an impending economic downturn, including weakening business confidence and falling industrial production in Germany.
The ECB will also release new quarterly forecasts after Thursday’s meeting, with most economists expecting a weaker growth outlook and modest upward revisions to inflation expectations for this year and next.
“With forward-looking growth data disappointing recently, we expect this to be enough to justify a hold on hold next week,” said Peter Schaffrik, global macro strategist at RBC Capital Markets.
The derivatives market predicts that the probability that the European Central Bank will raise the deposit rate to 4% on September 14 is about 35%.
However, with euro zone inflation reaching 5.3% in August, still well above the European Central Bank’s 2% target, many economists believe that another (and almost certainly eventual) rate hike is still possible.
Carsten Brzeski, head of global macro research, said: “It’s a very close call, but inflation remains too high, focus is on actual rather than forecast developments, and there are concerns about stopping rate hikes too early would tip the balance toward an eventual rate hike.” at ING. Martin Arnold
Did U.S. inflation accelerate in August?
Headline U.S. inflation is expected to rise sharply in August, but core inflation will still slow, which could increase pressure on the Federal Reserve to keep interest rates higher for longer.
The U.S. Bureau of Labor Statistics released its latest inflation data on Wednesday, with economists surveyed by Bloomberg predicting a year-over-year growth rate of 3.6%. That would mark an increase in the overall figure from 3.2% in July and the highest level since May.
Analysts at Barclays believe part of the acceleration is due to rising energy prices, with core inflation – which excludes the volatile food and energy sectors – expected to slow to 4.3% in August from 4.7% in July. Core monthly interest rates are expected to hold steady at 0.2%.
The acceleration in headline annual data is also attributable to a less favorable base effect – headline inflation peaked in June last year, and year-on-year rates for June and July this year reflect changes from very strong data in mid-2017. last summer.
Analysts at Barclays believe that the release of the consumer price index is in line with their expectations – overall inflation rate of 3.7%, core inflation rate of 4.3% – and will be consistent with the Federal Reserve raising interest rates by 0.25 percentage points. Positions in the futures market show that investors generally do not expect the Fed to raise interest rates at its September meeting, and predict that there is about a 50% chance of another rate hike in November. Kate Duguid
Will UK wage growth slow?
Bank of England Governor Andrew Bailey hinted this week that the central bank may not raise interest rates, although the market expects two more hikes of 0.25 percentage points, and investors will pay close attention to British labor market data.
Economists polled by Reuters expect annual wage growth to slow to 7.6%, which would provide the Bank of England some breathing room after last month’s data showed that wages excluding bonuses fell in the three months to June. Annual wage growth hit a record high. 7.8%.
The Bank of England’s Monetary Policy Committee monitors wage growth closely for signs of continued price pressures and monitors overall labor market tightness.
Speaking to the Treasury Select Committee on Wednesday, Bailey acknowledged that wages had so far risen faster than the committee had expected, but added that could soon change.
The market currently expects the Bank of England to raise interest rates by 0.25 percentage points to 5.5% on September 21, with a probability of 80%. Analysts said if wage data were weak, further rate hikes would be less likely. Mary McDougall
Svlook
