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Weekly Market Preview
Friday, Mar 22, 2024
Last week, the Federal Reserve opted to maintain interest rates at their current levels, while revising upward its forecasts for inflation in 2024 from 2.4% to 2.6%, and for economic growth from 1.4% to 2.1%. The committee member’s dot plot indicated their expectation of reducing interest rates three times throughout the year.
In contrast, the Bank of Japan hiked interest rates by 10 basis points, transitioning them out of the negative territory and concluding a policy that commenced in 2007. This decision was prompted by the accelerated rise in Japanese inflation levels and the potential for further escalation, especially following an agreement to increase wages. There are expectations that if inflation continues to climb, the Japanese central bank may proceed with further interest rate hikes, possibly between July and October of 2024.
On another note, the Swiss National Bank surprised the markets with cutting interest rates by 25 basis points, from 1.75% to 1.5%, with the primary objective of managing the appreciation of the Swiss franc. Meanwhile, the Bank of England maintained its interest rates unchanged. Notably, there was a decline in the number of votes from Monetary Policy Committee members in favour of hiking interest rates, attributed to the significant drop in inflation levels, which reached 3.4% in February. This decline suggests the possibility of an early interest rate reduction. However, the direction of the Bank of England at the June meeting will largely hinge on the Consumer Price Index reports for April and May.
Looking ahead, this week’s economic calendar is expected to be less eventful compared to the previous week. Nevertheless, market participants will eagerly await the release of the US Personal Consumer Expenditure (PCE) data for February towards the end of the week. This data is crucial for the Federal Reserve committee members as it is their preferred measure for tracking US inflation levels. Expectations suggest a potential increase in the YoY PCE headline from 2.4% in January to 2.5% in February. However, this trajectory contradicts the direction in which the Federal Reserve aims to move if it intends to cut interest rates by the end of the second quarter of 2024. Therefore, the PCE reports for April and May will play a pivotal role in shaping the Federal Reserve’s decision-making process at the upcoming June meeting.
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