The Federal Reserve, Bank of England and European Central Bank (ECB) will hold policy meetings next week. Market participants are expecting a 50 basis point rate hike, suggesting that rate hikes will continue. Rabobank analysts point out that his 50bp rate hike next week is a given. They still expect the ECB to be able to scale back to his 25bp rate hike from March, but a stronger outlook and wage pressures could delay this and pose upside risks.
Hawks still dominating, but no longer a blank slate
“The ECB hawks are still in a strong position, but they no longer have the discretionary power to show the first signs of easing inflation. This message will be made more difficult as Lagarde’s recent verbal intervention contradicts the ECB’s withdrawal of forward guidance in favor of a meeting-by-meeting approach. I don’t think the parameters of national tightening are very frowned upon, but supranational debt could get favorable treatment.
“The ECB has already announced that quantitative tightening will start at a pace of €15bn per month and this will not include aggressive sales. I don’t think I will.”