Is all set for ‘Great Fed Hike’?

Meanwhile, across the atlantic...

london — Several of the world’s top central banks will meet in the coming week, but only one, the US Federal Reserve, is set to start a final countdown on the second most anticipated event of the year after the presidential election.

Fed Chair Janet Yellen and the rest of the Fed’s policy-setters appear to have left themselves the December meeting to deliver a rate rise in 2016, with hardly anyone expecting a move only a week before the November 8 election.

If the Fed does go ahead the following month, as most in financial markets and analysts polled by now expect, it will have been a full year since the last increase and three short of the number of moves the Fed had anticipated back then.

Apart from a surprise outcome

Indeed, in light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months

Fed Chair Janet Yellen, in her much-anticipated speech in Jackson Hole on August 26

The Bank of England’s Monetary Policy Committee will meet to consider a different kind of inflation challenge from a very different angle.

The coming surge in imported inflation as a result of the pound’s collapse since Britons voted on June 23 to leave the European Union has considerably narrowed the central bank’s wiggle room for another rate cut below 0.25 per cent. in an election where nearly every poll puts Democratic Party candidate Hillary Clinton several percentage points ahead of Republican Donald Trump, the conditions to justify a long-awaited rate rise are lining up.

Growth bounced back to an annualised 2.9 per cent in the third quarter, at the high end of expectations, driven by inventory investment and a rebound in exports.

Crucially, nascent signs of inflation pressure — the missing ingredient up until now — are rattling sovereign bond markets around the globe, suggesting that few people are clinging to hope that the Fed will delay once more.

The Federal Open Market Committee, which already had three members voting for a rate rise at the September meeting, is expected to make clear in its statement that it has taken note of these improvements, however subtly.

“With market expectations for a December hike running higher this year compared with the same time last year, the Fed need not be as explicit in its message of intent at this meeting compared with the October statement in 2015 ahead of liftoff,” economists at Morgan Stanley said.

“Nevertheless, we expect that a simple change in the statement will send a clear message to markets that, barring any unforeseen hiccups, the Fed is a go for a December hike.”

Several important US data releases should support that view in the coming week, with manufacturing growth expected to hold up and already-strong expansion in the much larger nonmanufacturing industries due to accelerate.

Across the Atlantic, the Bank of England’s Monetary Policy Committee will meet to consider a different kind of inflation challenge from a very different angle.

The coming surge in imported inflation as a result of the pound’s collapse since Britons voted on June 23 to leave the European Union has considerably narrowed the central bank’s wiggle room for another rate cut below 0.25 per cent. —