Fed and ECB to make final policy decisions of the year, perhaps in conflict with global interest rate cut expectations

This week, central banks around the world from Washington to Frankfurt to London will make their final monetary policy decisions of the year, amid uncertainty about how the inflation cycle is turning around the world.

Monetary policy makers from half of the Group of Ten (G10) economies are scheduled to meet in the coming days, with interest rates on 60% of the global economy set in a 60-hour period.

The most notable event is the US Federal Open Market Committee (FOMC) meeting on the 13th. The European Central Bank (ECB) and the Bank of England will follow suit on the 14th.

With the exception of Norway, which could raise borrowing costs, most policymakers are facing pressure from financial markets to explain why they are not rushing to ease monetary policy.

Concurrently weaker inflation data and some evidence of a weakening economy have investors increasingly betting on rate cuts in the first half of 2024. Such a view could clash with the “higher, longer” policy advocated by the U.S. Federal Reserve and other central banks more than three months ago.

“The attitude of central bankers is that they’re waiting to see if this disinflationary situation is sustainable,” said Joyce Chan, head of global analysis at JPMorgan Chase & Co. “We don’t think there will be any rate cuts until the second half of next year,” he said.

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The FOMC is widely expected to keep interest rates unchanged at the highest level in nearly 20 years. It appears that the delayed effects of an aggressive rate hike cycle starting in early 2022 will be closely examined.

Federal Reserve Chairman Jerome Powell will acknowledge both progress on inflation and the risks of persistent price pressures in a press conference on Wednesday.

According to the US Consumer Price Index (CPI) statistics for November, which will be released on the 12th, the core index excluding food and fuel is expected to rise 0.3% from the previous month, an acceleration of growth from the previous month (0.2% rise). The increase is expected to be 4% compared to the same month last year, suggesting that the slowdown in inflation remains gradual.

The US employment statistics for November released on the 7th showed that the number of employees and wage growth exceeded market expectations, and the unemployment rate fell, demonstrating the strength of the labor market.