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How big will the Federal Reserve go in its next rate rise?

Will the Fed provide a third raise of 0.75 percentage points?

The US Federal Reserve is widely expected to announce a third consecutive 0.75 percentage point rate hike at the end of its September policy meeting, which closes on Wednesday.

The Fed has been raising interest rates at a rapid pace in recent months in an effort to contain price growth, which is still close to a 40-year high. Economists had expected consumer prices to fall from July into August on the back of the drop in gasoline prices, but data released Tuesday showed a small increase, suggesting the Fed has more work to do.

Following the inflation data, investors started betting on the possibility of a full percentage point gain, although the odds remain low given the Fed’s consistent reports of a 0.75 percentage point move in recent weeks.

The Fed will also release its “dot plot” or summary of economic projections on Wednesday, which shows where the average Fed official believes interest rates, inflation, unemployment and gross domestic product will be over the next few years. Significant changes in expectations are expected.

The latest dot plot was released in June and suggested that inflation, measured as major personal consumption expenditure, would be 4.3 percent by the end of 2022 and 2.7 percent by the end of 2023. The core PCE for July was 4.6 percent.

The June dots suggested that the interest rate would be at 3.4 percent by the end of 2022 and at 3.8 percent by the end of 2023. Currently, the futures market expects interest rates to reach 4.2 percent by the end of the year, peak at 4.5 percent in March 2023, and fall to 4 percent by the end of 2023. Kate Duguid

Will the BoJ stick to its ultra-loose policy?

The Bank of Japan is expected to maintain its ultra-easy monetary policy as market participants focus on whether authorities will intervene immediately to halt the yen’s decline to a new 24-year low.

The policy meeting follows a tense week in which BoJ officials called currency traders to inquire about market conditions in a so-called interest rate review, illustrating the government’s concern over the yen’s sharp drop against the US dollar. Such controls in the past preceded an intervention by the Ministry of Finance to control the exchange rate.

However, pressure on the yen is unlikely to affect the BoJ’s monetary policy, as Governor Haruhiko Kuroda repeatedly claimed it must hold its stance until wages and inflation rise “in a stable and consistent manner.”

Most economists expect Kuroda to stay on track until his term ends in April next year. The only change expected is for the BoJ to confirm the end of a scheme it has set up to provide low-cost loans to banks financing small and medium-sized businesses during the Covid-19 crisis.

“We expect the BoJ to leave monetary policy unchanged. . . because it has maintained its position that monetary policy is not focused on forex amid a sharp depreciation of the yen against the dollar,” said economist Kiichi Murashima, economist at Citigroup Japan.

The Fed, the Bank of England and the Swiss National Bank are expected to raise interest rates this week, widening the divergence in global yields that have weighed down the Japanese currency. Kana Inagaki

Will the BoE raise interest rates for the seventh time in a row?

The BoE is expected to continue its policy at its next meeting on Thursday, as inflation rates are about five times higher than the 2 percent target.

The central bank has raised interest rates in the past six consecutive meetings and picked up the pace in August, rising 0.5 percentage points. The median forecast by economists in a Reuters poll is for another half percentage point rate hike, although some expect an extra large 0.75 percentage point hike in bank rates.

The UK’s annualized inflation rate fell to 9.9 percent in August from 10.1 percent in the previous month, but core inflation, excluding food and energy, rose 0.1 percentage point to 6.3 percent.

The acceleration at the core alongside the sustained level of services inflation remains a notable cause for concern – one that we believe is likely to underline the need for further ‘vigorous’ action by the government. [Monetary Policy Committee]said Benjamin Nabarro, an economist at Citi.

Some economists also argue that the energy bailout package launched earlier this month and the tax cuts expected to be announced with the budget will help mitigate the blow of rising gas prices to businesses and consumers, but they could also mean higher interest rates for longer. .

Prime Minister Liz Truss’ intervention in the energy market — especially coupled with hefty tax cuts — could keep spending growth too high, said Kallum Pickering, an economist at investment bank Berenberg. “While such fiscal interventions will ease the short-term pain for consumers and lower the inflation peak, they tip the risks to our medium-term inflation calls upwards,” he added. Valentina Romei

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