FOMC: A Cautious Move
With US output escalating at its wildest rate for 13 years in 2018 and unemployment rate beating a 49-year low, the US economy is booming, inflation is at or above the 2% target on all the key measures and the jobs market is finally generating wage pressures.
However, a weaker global growth outlook is represented with Europe and Asia seeing clear signs of slowdown while increasing trade tariffs could affect the softening trend. Further equity market weakness emphasizes these fears for the 2019 growth.
Therefore, growth is expected to slow in 2019, but inflation could likely persist above target for much of the year ahead. Thus, three 25bp Federal Reserve rate rises in 2019 are expected versus four in 2018. As such, interest rate rises are expected to continue in 2019 but probably at a gentler pace.
ECB: A Hesitant Decision
The ECB was attempting to achieve policy normalization in 2019. However, given doubts about the strength of the Eurozone recovery and underlying inflation not gaining momentum, the ECB will take a very dovish stance, pushing the timing of a first deposit rate hike towards the end of the year. A reference rate hike may not happen until 2020.
Bank of England: Waiting on Brexit
There are four scenarios for the BOE with regards to Brexit:
- If the Brexit deal is approved by the Parliament in December, the Bank would most likely stay on track of rate hikes in May 2019, potentially followed by another increase in November.
- If the Brexit deal is turned down by the Parliament, then article 50 would most likely get extended, prolonging the uncertainty for businesses well into 2019; hence, delaying interest rate hikes.
- If a fudge passed through the Parliament and avoids a “no deal”, that most probably could take place in March 2019, consumers and businesses will stay cautious till the end; hence, delaying interest rate hikes as well.
- If the UK does fall off the cliff edge, then BOE policymakers have suggested rates could go in either direction. Hence, the Bank will focus on growth and look through any currency-induced inflation spikes.
Bank of Japan: Only speculation
The Japanese Economy is seen strongly recovering in the final quarter of 2018 and is expected to stay into the new year. Moreover, the economy could be further enhanced by removing negative rates that could help thrust economic activity and prices.
It is mainly expected that the BOJ is nourishing such discussions that will make them switch to a more normal policy; however, given the recent commends by the Japanese Governor Kuroda, such hikes might not be accomplished in 2019. Hence, there is no clear hike or drop; there are only speculations!