Fed to lead trio in hawkish rate pause

TIME FOR ACTION? While the US Federal Reserve, the European Central Bank and Bank of Japan are expected to keep rates steady, other central banks might choose to act

The US Federal Reserve and its peers in the eurozone and Japan would probably keep interest rates steady this week, opting to bide their time before potential further hikes.

Three days of decisions starting on Wednesday in Washington are likely to affirm a hawkish stance balanced by a measured pace as policymakers confront inflation risks ranging from surging energy prices to the artificial intelligence boom.

The Fed has missed its long-term two-percent target for inflation for more than five years, and at its meeting last month the Federal Open Market Committee (FOMC) voted to raise the key federal funds rate for the first time in three years, lifting the target range to 3.75 percent to 4.0 percent, and signaled another increase was likely this year.

While US inflation data has come in hot since then, officials seem in no rush to deliver another hike. Instead, economists and investors expect a move at the final meeting of this year, in December.

Fed Chairman Kevin Warsh, who has eschewed guidance on future moves, would face a tricky test at his post-meeting press conference. He probably would not offer much insight about December, but might also not want to sway market bets away from the current expectation for a hike.

The FOMC meeting comes days ahead of key midterm elections in the US on Nov. 3, with the Democratic Party seeking to wrest control of both houses of Congress from US President Donald Trump’s Republicans.

Fed watchers might need to wait until after the meeting to hear what other US central bankers say about the prospects for policy.

The European Central Bank on Thursday could offer its own signals on a hike in December, in a decision overshadowed by France’s bond-market troubles. The following day, the Bank of Japan would probably keep its rate steady while holding the door open to a move at the end of the year.

In contrast to the no-change expectations from those big-three G7 decisions, other central banks may well deliver action.

Most forecasters anticipate a hike from New Zealand on Wednesday, while several economists see the first such move in three years materializing at the Bank of Canada on the same day.

Meanwhile, Asia’s central banks face another test of their inflation-fighting resolve as the global bond selloff, prospects for higher developed-market interest rates, elevated oil prices and a record-strength El Nino threaten to keep financial conditions tight.

Aside from the decisions by the Reserve Bank of New Zealand and Bank of Japan, the Bank of Thailand’s outcome on Wednesday, forecast by economists at no change, is another highlight.