Morning Minutes

World Markets Await Central Bank Decisions




Over the next 24 hours, three of the world’s major central banks are holding interest rate decision meetings. The main event today is the US Fed meeting with an interest rate decision, statement, and member projections due at 2:00 pm EDT, followed by Chair Powell’s usual press conference at 2:30 pm. In addition to the actual announcement, investors may look to the projections and commentary for hints about the state of the economy, the health of the banking system, and the Fed’s commitment to fighting inflation relative to supporting consumer confidence.

The FOMC finds themselves walking a tightrope at this meeting. Up until two weeks ago, the US central bank had been focused on fighting inflation and talk from many FOMC members had become increasingly hawkish. Recent problems in the banking sector, however, have reminded investors that while raising interest rates may solve one problem, it can create other problems. Recent thinking has shifted to how much support the Fed may need to provide to shore up confidence in the US banking system and avoiding a panic.

The Fed is widely expected to raise the Fed Funds rate by 0.25% to 5.00%, although a pause also appears possible. Investors may also look to the Fed Funds projections (Dot Plot) to see if there is a hawkish or dovish shift in FOMC member thinking about the future. The issue appears to be that if the Fed comes in too hawkish it could raise concerns that they are not being supportive enough, and if they come in too dovish, it could raise fears that things may be even worse than they seem.

Tomorrow morning, the Swiss National Bank, who is dealing with a banking crisis of its own with Credit Suisse running aground and set to be bought by UBS, is expected to announce its latest interest rate decision, whether to keep playing catch-up or pause to support its financial system. Meanwhile, the Bank of England is expected to raise its benchmark rate by 0.25% tomorrow as it deals with its own inflation pressures. This morning the UK Consumer Price Index came in hotter than expected (10.4% vs street 9.8% and previous 10.1%).

World markets have gone quiet ahead of these decisions with investors reluctant to make big moves until they get more information. US index futures are flat to down 0.2%, digesting yesterday’s US index rallies of 1.0% to 1.6%. In Europe this morning the Dax is up 0.5% and the FTSE is flat. The US 10-year treasury note yield is holding steady near 3.60%, while Gold is steady just below $1,950/oz. Commodities are mixed again with WTI Crude Oil down 0.3% and Copper up 1.2%.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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