Central bankers set to pull the trigger

Global central bankers are focusing on tightening monetary policy rather than pacifying nervous financial markets.

That was the message for investors last week from the US Federal Reserve, the European Central Bank and Bank of England. Officials in the Philippines and India also sent hawkish signals.

As Jerome Powell prepares to speak at length on monetary policy this week for the first time since becoming chairman of the Fed, market players will be paying extra-close attention.

In the minutes of a meeting that took place in January before stocks slid, Fed policymakers agreed that “substantial underlying economic momentum” could sustain additional increases in rates.

That reinforced speculation of a move in March and fanned talk that there could be more than three rate increases, the number most market-watchers expect, before the year is out.

“With a strong labour market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalised,” Fed vice-chairman Randal Quarles said.

Bank of England officials led by Governor Mark Carney, meanwhile, gave investors more reason to expect a rate increase in May, despite data showing the UK economy is being pinched by Brexit.

At the European Central Bank, officials are preparing for a shift in policy language by midyear, although the process is likely to be gradual.

Elsewhere, Governor Nestor Espenilla told Bloomberg that interest rate adjustments remain on the table in the Philippines, while markets are betting Indian policymakers may act too. Polish hawks also said it’s too early to rule out a rate increase this year.

Meantime, Singapore’s government may have given the central bank a green light to charge ahead with monetary policy tightening this year as it delivered its latest budget.

Still, inflation unexpectedly slowed in Sweden, adding to doubts the Riksbank will start unwinding stimulus this year. Brazil’s central bank is also weighing the risks of slower-than-expected inflation and global volatility as it considers whether to extend its easing cycle.

Talk of tightening comes just weeks after a rout in stock markets that led some to suggest central banks would have to hold back reversing stimulus.

Not so, say the policymakers.

“Wall Street overreacts to everything,” Fed Bank of Minneapolis President Neel Kashkari told Bloomberg Television. “We can’t make policy based on market blips up and down.”

And Carney said the recent uptick in volatility “does not concern me in terms of the path of policy.”

Investors are still jittery about the outlook, though, and may look to Powell next week for signs of how tolerant he is of falling equities.