Monetary policy dominates the economic calendar for the next 24 hours with four major central bank decisions on the way. The US Fed is up first at 2:00 pm with a 0.75% increase widely expected. The Bank of Japan is not expected to do anything overnight. The Swiss National Bank is expected to take its benchmark rate above zero for the first time since 2014 tomorrow and the Bank of England is generally expected to continue its program of 0.50% rate increases.
There had been some speculation after last week’s US inflation reports that the Fed could announce a 1.00% increase as Sweden’s Riksbank did yesterday and the Bank of Canada did earlier this summer, so the rate decision could spark an initial reaction, but the statement and member forecasts may also carry significant weight for investors. In particular, investors may look to the “Dot Plot” of Fed Funds forecasts to see where FOMC members think interest rates could top out (aka the terminal rate), and how long they may remain elevated above 2% long-term neutral rate.
Back in June, the average of member forecasts for year-end fed funds was 3.4% for 2022, 3.8% for 2023 and 3.4% for 2024. In comparison, the 1-year treasury note yield is trading near 4.03% this morning, and the 2-year yield is near 3.95%. FOMC members also forecast 1.7% GDP growth, a 3.7% unemployment rate and Core PCE inflation of 4.3% for 2022 back in June.
Stock markets are quiet ahead of today’s decision. US index futures are up 0.1% to 0.3%, clawing back a bit of yesterday’s 0.9%-1.1% losses. Energy markets have been more active with WTI crude oil rallying 1.7% and natural gas jumping 4.2% as political tensions and supply concerns rise with Russia announcing a partial mobilization of more troops for its war in Ukraine. Metals action is mixed with gold up 0.75% and copper down 0.75%.
