OTTAWA – Two of the world’s most powerful central banks will probably end up at odds this week.
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The U.S. Federal Reserve is anticipated on Wednesday to keep its current rate of interest level, while keeping focused on gradually tightening borrowing costs because the economy improves – even though the next hike may still be some ways off.
The Bank of England, meanwhile, is taking into consideration the threat of the “Leave” victory in June’s referendum on the U.K. break in the Eu – a concern that may prompt policymakers to preemptively cut their key lending rate on Thursday, or hold back until following the “Brexit” vote.
As for the Bank of Japan, policymakers in the world’s third biggest economy left their main interest level as-is .
The U.S. Fed, led by chairwoman Janet Yellen, continues to be following its so-called “dot plot” – a chart of 17 policymakers’ predictions over the past four years of where their benchmark rates are headed.
The central bank’s rates are now between a selection of 0.25 to 0.5 per cent, where it has been since December.
Since then, “the data has been mixed to positive, but nothing indicate they should completely put a break on monetary policy,” said Charles St-Arnaud, an economist at Nomura Global Research in London.
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And at this time, Yellen and her Fed colleagues are not in a rush to regulate lending levels.
“The core message will still be exactly the same: expansion is still going on,” said St-Arnaud, who had been previously based in Ny. “There has still been some volatility and some risks, however the basic message remains the same.”
Michael Gregory, deputy chief economist and head of U.S. economics at BMO Capital Markets, said he’ll be watching for “two big things” on Wednesday.
“I do think they’ll say that the potential risks continue to be nearly balanced,” he explained. But rather than projecting four rate increases this year, “I think what we should will see is a shift down to only three for this year, and possibly still four for the coming year.”
The Fed has discussed an eventual steady interest rate of approximately 3.5 per cent, he explained. “I suspect that will fall too, to about 3.25 per cent.”
The U.S. decision will come eventually prior to the Bank of England announces it’s latest rate decision.
Peter Dixon, an economist at Commerzbank AG in London, said “a vote for Brexit might alter the landscape and tip the total amount in favour of easing, but this is one thing we will only be able to evaluate properly after the referendum.”
“So long as growth stands up and inflation doesn’t go into reverse, I’d expect the (Monetary Policy Committee) to stand pat,” he told Bloomberg News. The financial institution of England continues to be in a record low 0.5 percent for pretty much seven years.
St-Arnaud, in London, agrees there will be no rate decision on their side until after the Brexit vote.
“Until then, we’ll stay on hold. They (BOE governor Mark Carney and the policymakers) probably wouldn’t wish to rock the boat,” St-Arnaud said.
“We’ll probably have some discussion about ‘maybe rate hikes are needed.’ They might have a dissenter or two. But overall, I don’t think they’d want to signal too much through monetary policy before the Brexit vote.”
Meanwhile , the financial institution of Japan kept its reserves deposit rate at negative 0.1 percent – as was widely expected. The BOJ caught world markets unawares in January when it made the move to negative rates.
“They’re not in a hurry to complete more,” St-Arnaud said. “They will continue to evaluate the outcome of negative rates around the economy before they create another decision.”
gisfeld@nationalpost.com
Twitter.com/gisfeld
