Global monetary policy is heading into a fresh turning point as the Group of Seven’s major central banks line up rate decisions in the same week, with inflation pressures still building, tensions in the Middle East rising again and oil back above $100 a barrel.
The Federal Reserve will go first on Wednesday. The Bank of England and the Bank of Japan will follow over the next two days. The European Central Bank already tightened policy last Thursday, leaving investors to weigh whether a more synchronized hawkish stance is taking shape across major developed economies.
The Fed faces its key test after hotter core inflation data
The Federal Reserve’s decision is the week’s main event. A stronger-than-expected U.S. core inflation reading released last Friday pushed up market bets that Chair Warsh will lead a rate hike this week, a move the report said could run directly against President Donald Trump’s wishes.
Bloomberg economists Anna Wong, Andrew Sacher and Eliza Winger said: “The market signal is unambiguous: investors want and expect the Federal Open Market Committee to hike. If it does not, Warsh will lose credibility with market participants.”
Warsh said last month that if the Fed could not become “sufficiently quickly confident that underlying inflation is moving toward target,” then there would be “work to do.” The latest data did not provide that confidence. Investors and economists now treat a Fed hike as close to a done deal, and if delivered, it would be the U.S. central bank’s first increase in benchmark rates in three years.
Support for tighter policy has already been building inside the Fed. At the July policy meeting, three officials dissented against keeping rates unchanged and instead favored a hike. On Wednesday, the Fed will also release updated projections for growth, inflation and the policy-rate path, giving markets a broader read on where officials see the economy and rates heading.
The U.S. calendar is also crowded this week. Retail sales, which are expected to rebound in August, will be released alongside housing starts and industrial production figures.
The Bank of Japan is widely expected to raise rates to 1.25%
The Bank of Japan is another focal point. Markets broadly expect the BOJ to lift rates on Friday, taking the policy rate to 1.25%, which would be the highest level since 1995.
The report said a series of supportive data points has strengthened the case for the move, including the biggest wage increase in nearly 30 years. If the BOJ acts as expected, it would mark the bank’s second rate hike this year.
Japan’s government is due to publish August nationwide consumer price data the same day, with inflation expected at 2% year over year. Analysts believe a hike could also lend added support to the yen, which has already shown signs of recovery recently.
The Bank of England may stay put, but hawkish signals remain in view
The Bank of England announces its decision on Thursday. Markets do not currently expect a rate increase at this meeting, but the outcome will still be watched closely.
At the end-July meeting, three officials explicitly backed a hike. At the same time, inflation pressure in the U.K. has continued to build. Headline inflation for August is expected to rise to 3.1%, the highest in five months, keeping open the possibility that the BOE could turn to rate hikes as early as November.
Labor-market data due on Tuesday are expected to show wage growth was broadly stable. Beyond the rate decision itself, markets will also watch the BOE’s annual announcement on the pace of reducing its bond holdings.
The ECB and Bank of Canada add to the tightening picture
The European Central Bank already moved last Thursday, delivering what the report described as another important piece of the broader tightening picture. It was the ECB’s second rate increase since the outbreak of the Iran conflict.
This week, ECB Chief Economist Philip Lane is scheduled to attend a two-day research conference. President Christine Lagarde and her colleagues will also join an informal meeting with European Union finance ministers in Dublin.
In Canada, the central bank kept rates unchanged earlier this month but put clear emphasis on inflation risks in its statement. Minutes due on Wednesday are expected to offer more detail on where the policy balance is leaning.
Canada will also release August inflation data on Monday, giving markets another reference point for the economy as its tariff dispute with the United States continues to intensify.
China, India and Brazil also have key releases ahead
Beyond the G7, major data and policy events across Asia and emerging markets will also draw attention.
China is set to release August industrial output, retail sales, nationwide real-estate development investment and home-price data for 70 cities on Sept. 15. CICC Macro forecasts that retail sales growth may improve, while industrial output growth is seen at 4.6% year over year.
India’s August inflation data are due Monday. Markets are watching whether price pressure spreads further as they assess the timing window for any rate hike by the Reserve Bank of India.
In Latin America, Brazil’s central bank is expected to cut its benchmark rate by 25 basis points on Wednesday for a fifth straight time, taking the Selic rate to 13.75%. Even so, inflation that remains above target and stubborn inflation expectations are still likely to limit how much easing the bank can signal.