The world’s major central banks meet in the coming week to set monetary policy amid continued signs that the worst inflation crisis in decades is easing.
While the Federal Reserve and European Central Bank are each expected to raise interest rates by 25 basis points, the greater focus will be on signaling from policy makers on whether more hikes are likely — or if they plan an extended pause.
Both Fed Chair Jerome Powell and ECB President Christine Lagarde have warned that inflation remains too high, forcing them to raise borrowing costs further. But with neither central bank meeting again until September, economists say the outlook for policy into the back end of the year remains open-ended.
The Bank of Japan remains the outlier, with more than 80% of analysts polled expecting Governor Kazuo Ueda to continue pumping support into the world’s No. 3 economy even as inflation remains above their 2% target.
Fed policymakers are poised to hike rates Wednesday to the highest rate in 22 years, while retaining a tightening bias that signals the possibility of an additional move later in the year.
The Federal Open Market Committee is expected to raise rates quarter point to the 5.25%-5.5% range, an 11th increase over the past 16 months. The rate decision will be released at 2 p.m. in Washington. Powell holds a press conference 30 minutes later.
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The July hike follows a pause in June that was intended to slow the pace of increases as rates approach a level believed to be restrictive enough to return inflation to the 2% target over time. Still, Powell and other policymakers will want to sound resolute and keep options open to hike again if necessary to avoid recurrences of surging prices.
“Inflation is slowing, but not quickly enough for the Fed,” said James Knightley, chief international economist at ING Financial Markets LLC. “With the jobs market remaining firm, officials are taking no chances.”
