OPINION
Market Rating Before FOMC MeetingJan 31
How Will Markets Price Central Banks' Decisions?
First of all, the focus of market actors is on the critical monetary policy meeting of the Federal Open Market Committee (FOMC), which ends today. The bank is expected to maintain its aggressive tightening cycle in order to solidify consumer inflation, which reached its peak in 41 years with 8.6 percent in the world's largest economy.
On the other hand, the European Central Bank (ECB), which signaled a 25 basis point interest rate hike at its monetary policy meeting in July last week, announced that it would hold an unplanned meeting today. It is reported that the recent strong sales in the global bond market will be discussed at the meeting. However, the exact time of the meeting is not known yet. As a matter of fact, the indicator of European bonds in Germany has reached its highest level since 2014 with a 10-year, 1.76 percent.
On the other hand, the Bank of England (BoE) will make its interest rate announcement tomorrow. Despite the fact that the consumer price index (CPI) in the UK rose to 9.0 percent on an annual basis, the highest level since 1982, there are recession risks in the country. According to the Office for National Statistics (ONS) earlier in the week, gross domestic product (GDP) in April contracted by 0.3 percent compared to the previous month. This creates expectations that the Bank of England (BoE) will hesitate to raise rates.
The Central Bank of China (PBoC) has also been taking measures to support the economy for some time, leaving the medium-term key interest rate at 2.85% to prevent a further widening of policy divergence ahead of the FED interest rate decision.
In summary, the FED, which is responsible for guiding global monetary policy, is expected to tighten by 50 basis points at its meeting tonight. However, it is also worth noting that some key institutions such as JPMorgan Chase, the world's leading investment bank based in New York, are indicating that a 75 basis point rate hike could be made.
It should be remembered, however, the expectation that FED will raise rates by 50 basis points over the next two meetings is fully priced into the markets. However, if the chairman of the Fed, Jerome Powell, who will appear before the press, gives a 75 basis point tightening signal for any of the next 3 meetings, the dollar may increase the pressure on the financial markets.
