The Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Japan (BoJ) will announce their interest rate decisions today and tomorrow so most economists will be focused on the post-meeting statements to understand the future policy course for three of the major central banks worldwide.

In other news, UK CPI inflation rose by 2.6% in November, in line with market expectations. Core inflation came in at 3.5%, slightly lower than the forecast of 3.6%. Services inflation held at 5% due to a price reduction in airfares.
 

Fed Interest Rate Decision

On Wednesday evening, the Federal Open Market Committee (FOMC) is expected to announce its decision on interest rates. The majority of economists expect that the Fed will lower its benchmark interest rate by 25 basis points. The CME Fedwatch Tool seems to be in line with forecasts as it projects a 97% probability of an interest rate cut after the upcoming meeting. However, forecasts regarding follow-on rate cuts into 2025 are now limited to just two.

A report released by the Commerce Department yesterday showed retail sales receiving a boost on the back of the Thanksgiving holiday, surpassing economists’ forecasts. Commenting on monetary policy, ING analysts suggested that there would be a 25 bps rate cut in each quarter in 2025, adding that they see a possible pause in January.

Its economists wrote in a report that “as such, we favour them cutting rates again in December, but a pause in January looks likely. By the March FOMC meeting, the Fed will have a clearer understanding of President Trump's tariff, tax and spending plans. The prospect of domestic tax cuts supporting growth while tariffs push up inflation certainly argues for a slower and more gradual rate-cutting path next year.”
 

BoE To Keep Rates On Hold?

On Thursday, the BoE will follow suit as its Monetary Policy Committee (MPC) will discuss interest rates. Economists do not expect any rate adjustments although the BoE stands out from the rest of the major central banks keeping its benchmark interest rate high at 4.75%.

Analysts at Morningstar Europe said: “Rate cut expectations have fallen rapidly over the course of 2024, as central bankers proved more cagey than investors had hoped, and inflation proved a tad stickier. The Bank of England is now something of an anomaly among Western Central Banks, with rates still high at 4.75%, but the market is pricing in another 80+ basis point cuts in 2025. Good things come to those who wait.”

Economists at ING noted that “a December rate cut looks unlikely now, but renewed progress on services inflation and wage growth in the spring should, we think, unlock faster cuts. We expect the next rate cut in February and think we’ll most likely see another in March and then at every meeting until rates get down to the 3.25% area.”
 

BoJ Likely To Hold Rates Steady

Some hours before the BoE’s meeting, the Bank of Japan governing board will decide on monetary policy and interest rates. Most economists suggest that the BoJ will refrain from adjusting its interest rates in the last meeting of the year. A  Reuters report mentioned that 95% of economists polled in Japan by a local money market brokerage forecast the overnight call rate to rise three months from now.

The BoJ aims to bring inflation to 2% on a yearly basis while its board has noted that it would be ready to hike borrowing costs depending on wage and price levels recorded in the economy. BOJ Governor Kazuo Ueda told reporters some days ago that another rate hike is “nearing in the sense that economic data are on track” but also stressed that potential changes in US economic policies would play a role.

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