The world’s main central banks are meeting next week to set their monetary policy amid continuing signs that the worst inflation crisis in decades is subsiding.
Although the Federal Reserve and the European Central Bank are expected to raise interest rates by 25 basis points each, most attention will be focused on signals from policymakers about whether more hikes are likely or whether they plan an extended pause.
Both Fed Chairman Jerome Powell and European Central Bank President Christine Lagarde have cautioned that inflation is still too high, pushing them to boost borrowing prices even more. But with neither central bank meeting again until September, economists say the outlook for monetary policy by the end of the year remains undefined.
The Bank of Japan remains the exception, continuing to inject aid into the world’s third-largest economy even as inflation remains above its 2% target.
Federal Reserve
Federal Reserve policymakers are set to raise rates to the highest level in 22 years on Wednesday, maintaining a tightening bias that points to the possibility of a further hike later in the year.
The Federal Open Market Committee is expected to raise rates by a quarter of a point to a range of 5.25%–5.5%, which would be the eleventh rise in the last 16 months. The rate decision will be revealed in Washington at 2:00 pm. Powell will give a press conference 30 minutes later.
The July boost comes after a pause in June to moderate the pace of hikes as rates approach a level deemed restrictive enough to return inflation to the 2% target over time. Still, Powell and other policymakers will want to be tough and keep options open to raise rates again if necessary to prevent prices from rising again.
“Inflation is slowing, but not fast enough for the Fed; with the labor market holding firm, civil servants are taking no chances,” James Knightley, chief international economist at ING Financial Markets LLC, said.
