©Health & Fitness Journal.
By Laura Sanchez
Investing.com – Markets are mixed this Friday – , , – and investors will watch next week as both the (Fed) and (ECB) release rate decisions.
ECB: 50 or 75 basis point hike?
In fact, the predictions of experts are already available. “With price indicators weakening and the economy holding up better than expected, next week’s central bank meetings point to a slowdown in rate hikes. Both the Fed and ECB are likely to hike +50 basis points (bps) from +75 bps previously. Until these meetings, there will be no central bank interventions during the meeting (blackout period), allowing bonds to fall after yesterday’s declines (price increase, decrease in IRR) could be bought,” explain Bankinter analysts.
Danske Bank also expects the ECB to hike rates by 50 basis points and hike further in the first quarter of next year. These experts expect the deposit rate to peak at 2.75%.
“At next week’s meeting, we expect the ECB to deliver a 50bp rate hike with a hawkish twist. In particular, we expect the ECB to present the key principles for the end of reinvestments as part of the APP process (where reinvestments will be almost complete). Stop) and an indefinite formulation for further rate hikes. This will be a compromise that we believe will be palatable to both hawks and pigeons,” they note at Danske Bank, as reported by FXStreet.
FXStreet also reiterates Rabobank’s forecast, which agrees with Danske Bank and believes the ECB is likely to hike rates by 50 basis points in December, although they do not rule out the possibility of a 75 basis point hike.
“Despite an initial decline in headline inflation, it is still high and will slow inflation’s convergence back on target. The new staff forecasts will include a forecast for 2025, but given the recent forecast errors the ECB should play it safe for as long as it takes. Inflation risks remain,” Rabobank analysts explain, adding: “We keep our forecast of a 3% terminal rate .”
Another expert pointing to a more hawkish ECB strategy is Nordea, which is targeting a third straight hike of 75 basis points.
“We believe that the ECB will postpone the decision on the start date for the unwinding of the huge bond holdings or set the date for late Q2 or early Q3 2023, in a nod to the more dovish voices in the Governing Council,” say analysts at Nordea.
Fed: Will it deliver on its dovish promise?
As for the Fed, these analysts expect a dovish message on monetary policy stance in 2023. According to these experts, the recent easing in financial conditions is premature and more will be needed.
“The US economy remains on a path of modest growth in the fourth quarter and the Fed needs to force a moderate recession next year to avoid extending inflation from here. In order to lower demand, overall financial conditions need to tighten again, likely involving a combination of further rate hikes in Q1, still elevated longer-term real yields and a stronger USD,” say analysts at Danske Bank.
Likewise, analysts at BofA agree: “We expect the Fed to raise its target range for the federal funds rate by 50 basis points to 4.25-4.5% in December. Fed communications over the last few weeks have clearly signaled this move as to where the Fed is headed next,” notes Forexlive’s comments.
(Translated from Spanish)