The Federal Reserve's FOMC will announce its interest rate decision at 2 a.m. this Thursday, April 27. The prevailing market expectation is that the Fed will maintain the federal funds rate within the current range of 3.5% to 3.75%.
This will be the final interest rate decision presided over by current Fed Chair Powell. After May 15, the Federal Reserve will welcome a new chair, Kevin Warsh, who was nominated by former President Trump. Kevin Warsh is highly likely to implement ultra-loose monetary policies in line with Trump's preferences, suggesting that the late-April Fed decision could be the last one before a potential interest rate cut.
With US inflation currently elevated, markets believe the Fed should raise rates. If Powell holds firm on keeping rates unchanged, the US Dollar Index could face significant downward pressure following the announcement.
At 20:30 on Thursday, the United States will release a series of economic data, with the most closely watched being the March PCE Price Index. Due to the ongoing war between the US and Iran in March, which caused international oil prices to rise persistently, the market anticipates a substantial increase in the US PCE Price Index.
The previous annual rate for the US March PCE Price Index was 2.8%, with an expected value of 3.5%, indicating a forecasted increase of 0.7 percentage points. An inflation level of 3.5% is already significantly above the Fed's 2% target. Disregarding other factors, this data would typically pressure the Fed to consider raising rates immediately after its release.
However, other factors cannot be ignored. For instance, the annual Core PCE Price Index had a previous reading of 3.0%, with an expected value of 3.2%, suggesting a modest increase of only 0.2 percentage points. The relative stability of the core PCE data will likely serve as the Fed's primary justification for refraining from a rate hike. In reality, the Fed is generally reluctant to raise interest rates solely in response to rising international energy prices. Therefore, even if the core PCE data shows a notable increase, the Fed will most likely take no action.
This week is a "super central bank week," featuring interest rate decisions from four other major central banks besides the Federal Reserve.
During the Asian trading session on Tuesday, the Bank of Japan will announce its policy decision. The consensus expectation is for it to maintain its benchmark rate at 0.75%. Since September 2021, Japan's inflation rate has turned positive from negative, even reaching a high of 4.3%, indicating an end to deflationary pressures. The Bank of Japan is committed to interest rate normalization. The current rate of 0.75% remains relatively low, suggesting potential for future rate increases.
On Wednesday at 21:45, the Bank of Canada will announce its rate decision. The mainstream view is that it will keep its benchmark interest rate steady at 2.25%. Canada's unemployment rate stands at 6.7%, notably higher than the 5% level considered safe, while its inflation rate is 2.4%, hovering near the 2% benchmark for moderate inflation. The weaker labor market and relatively stable price levels suggest that the Bank of Canada is inclined towards a looser monetary policy to stimulate employment.
The Bank of England and the European Central Bank will announce their respective decisions on Thursday at 19:00 and 20:15. The general expectation is that both central banks will keep their benchmark interest rates unchanged. Given the close economic and trade ties between the UK and the Eurozone, and their converging macroeconomic trends, they can be analyzed together. The Eurozone's inflation rate is 2.6%, and the UK's is 3.3%, both exceeding the 2% moderate inflation target. Rising international oil prices are a temporary factor driving higher inflation in both regions. Since rate hikes by the BoE and ECB cannot effectively curb high oil prices and could risk harming the labor market, maintaining the current policy stance is seen as the most rational choice.
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