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Analysts expect the Fed and other central banks to continue to slow down their interest rate hikes at this week's upcoming policy meetings.
The Federal Reserve is widely expected to ease its monetary policy tightening amid mounting signs of cooling inflation. Members of the Federal Committee on the Free Market (fomc) reported that they were in favour of an increase of 0.25 percentage points. This would increase the reference rate for federal funds from 4.5 per cent to 4.75 per cent.
This possible increase, the Federal Reserve's second consecutive fall, would mark a return to more normal rates. The central bank had increased its rates by 0.5 percentage point at its last meeting, following four consecutive increases of 0.75 percentage point last year. Other major central banks are also ready to follow suit, while there are indications that their efforts have brought inflation under control.
Europe is getting ready for hikes as well.
The markets expect the ECB to raise interest rates by 0.5 percentage points later this week. The President of the ECB, Christine Lagarde, recently stressed that the monetary authority would "stay the course" in terms of high interest rate hikes. This suggests a further increase of 0.5 percentage points, after his last session, increasing the filing rate to 2.5%.
One expert explained that the resilience of the economy and the persistence of core inflation will make it necessary for the ECB to reiterate this decision. However, after an additional 0.5 percentage points in March, it is forecast to decrease to 0.25 in subsequent sessions. At that time, he said that inflation would reach 3.5 per cent.
Markets are also forecasting an increase of 0.5 percentage points from the Bank of England at this week's meeting. From an all-time low of 0.1 per cent at the end of 2021, this increase would bring the discount rate to 4 per cent. It's the tallest since 2008.
Is the threat of recession going to be alleviated?
These decisions were made in the midst of consecutive indicators indicating that efforts to increase rates have had an impact on inflation cooling. The Consumer Price Index actually declined 0.1% in Dec., compared to the previous month, the lowest since Oct. 2021.
Its 6.5% year-on-year gain, although strong, is still down for the sixth consecutive month. While rising rates seemed to have dampened inflation, recent data show that GDP growth remained robust in the fourth quarter.
With inflation cooling and the economy intact, markets expect a "soft landing" to any imminent recession. Crypto markets have also responded accordingly, with on the rebound this month.
Both the leading cryptocurrency and runner-up Ethereum have seen a 30% appreciation this month as economic prospects emerge. But measures taken by the Fed will also be driven by other relevant economic data expected this week.
