Eyes on central banks: probability of a smooth Fed transition has increased

The jobs report released on Friday raised prospects for a smooth transition for the world’s largest economy, as US Federal Reserve officials prepare to slow the pace of rate hikes again next week. amid signs of slowing inflation.

In addition, the European Central Bank (ECB) is expected to raise interest rates by 50 basis points. However, potential signals as to where the bank may end interest rate hikes are also important.

EYES ON FED

The Fed is expected to raise the policy rate by 25 basis points to the 4.5-4.75 percent range on Wednesday. If interest rates are raised by 25 basis points, the Fed will have stopped rate hikes in two consecutive meetings.

In his January 20 speech, Philadelphia Fed President Patrick Harker said: “I think we’ll raise rates a few more times this year. But in my opinion, the days of raising interest rates by 75 basis points every time are definitely gone,” he said. Herker said that increases of 25 basis points would be more appropriate in the future.

THE POWELL MEETING WILL BE WATCHED

In addition, the clues that Fed Chairman Jerome Powell will give at the press conference to be held after Wednesday’s meeting will be closely monitored. Powell’s speech will seek to answer the questions of how much the Fed plans to raise interest rates and what data officials will follow before taking a break.

Fed officials have previously made it clear that they want to see evidence that labor market supply-demand imbalances are beginning to improve. Hiring in the US is expected to slow in January. According to estimates, the unemployment rate is believed to have risen to 3.6 percent, with median earnings down 4.3 percent compared to the previous month.

EYES IN EUROPE

On the other hand, the day after the Fed, the European Central Bank (ECB) and the Bank of England (BoE) are expected to raise rates by 50 basis points. Earlier, Eurozone data was seen to point to a slowdown in slowing inflation.

However, although the signs of easing inflation in Europe are not thought to be sufficient by the ECB and the BoE, these two central banks are forecast to slow the pace of interest rate hikes at the March meeting. , after the rate hike of 50 basis points.