Investors are waiting for ECB and Fed to speak
2022.12.09 04:37
Investors are waiting for ECB and Fed to speak
Budrigannews.com – In fact, the predictions of experts are already in place. The central bank meetings next week suggest that the rate of rate hikes will slow down as a result of price indicators falling and the economy performing better than anticipated.
The Fed and the ECB are likely to raise rates by +50 basis points (bps), down from +75 bps earlier. Analysts at Bankinter provide the following explanation: “Bonds could be bought after yesterday’s falls (rise in price, fall in IRR) as there will be no interventions by central bankers during the session (blackout period) pending these meetings.”
Additionally, Danske Bank anticipates that the European Central Bank (ECB) will begin raising interest rates by 50 basis points in the first quarter of next year. These experts anticipate that the deposit rate will peak at 2.75 percent.
“We anticipate the ECB to announce a hawkish 50 basis point rate hike at its meeting next week. In particular, we anticipate that the ECB will present open-ended language regarding future rate hikes and key principles of the end to reinvestments under the APP process (where reinvestments will almost come to a complete stop). According to FXStreet, “We believe this will be a compromise that will be palatable to both hawks and doves,” they write at Danske Bank.
FXStreet also agrees with Rabobank’s predictions, which are in line with Danske Bank’s and believe that the ECB will likely raise rates by 50 basis points in December. However, they do not rule out a 75 basis point increase.
“Despite a first decrease in headline inflation, it remains high and will slow inflation convergence back to target. “We maintain our forecast of a 3% terminal rate,” Rabobank analysts explain. “The new staff projections will include a forecast for 2025. However, given recent forecast errors, the ECB should err on the side of caution as long as upside inflation risks remain.”
Nordea’s goal of a third 75bp hike in a row is another expert pointing to a more hawkish ECB strategy.
According to analysts at Nordea, “We believe the ECB will postpone the decision on the starting date for reducing the huge bond holdings, or set the date for late Q2 or early Q3 2023, in a nod to the more dovish voices in the Governing Council.”
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These analysts anticipate a hawkish policy stance from the Federal Reserve in 2023. These experts say that the recent improvement in financial conditions is premature and that more will be required.
“The US economy continues to grow at a moderate rate in the fourth quarter, and the Fed needs to force a moderate recession the following year to prevent inflation from getting any worse from here.” According to analysts at Danske Bank, “a combination of more rate hikes in Q1 still elevated longer real yields and a stronger USD” is required for demand to fall. “Getting demand lower requires broad financial conditions to retighten again.”
Additionally, BofA analysts concur: In December, we anticipate that the Fed will increase its target range for the Federal funds rate by 50 basis points to 4.25-4.5 percent. This move has been clearly hinted at in Fed communications over the past few weeks. “Where the Fed goes next is the more important question,” they say in comments shared with Forexlive.
